Inflation Worries Send Investors Flocking to Inflation-Linked Bonds

The recent Federal Reserve meeting has led to concerns about inflation control, causing investors to seek protection in bonds that adjust yields for price growth.

Long-maturity US yields reached their highest level in almost two decades last week as Fed Chairman Kevin Warsh refused to specify how policymakers would manage inflation, fueling worries the central bank may react too late despite its commitment to keeping prices under control.

Breakeven rates, which measure inflation expectations, are close to their lowest in a year, but experts like Jon Hill from Barclays expect the market to price greater inflation risk into the curve, resulting in wider breakevens and inflation-linked bonds outperforming conventional ones.

HSBC's Dhiraj Narula reiterated his recommendation for long-maturity US bonds that protect against price growth, citing concern about the Fed's 'longer-run commitment to inflation control.'