Food Price Shock Looms as Bond Markets Worry About Inflation

Food prices are rising globally, presenting a new risk to bond markets after energy prices caused significant selloffs this year.

Investors worry that staple food costs will surge due to potential droughts, tight fertilizer supplies, attacks on shipping, and Europe's record hot summer. A 'Super' El Niño could exacerbate these issues.

Carmignac, Fidelity International, and Troy Asset Management are buying protection or reducing exposure to countries most affected by the food price rise.

Money managers see every dip in five-year breakeven rates as an opportunity to add index-linked government bonds. Central banks watch closely because a food shock may boost household expectations of inflation and spread through the economy.