Investing in Inflation-Linked Bonds without the Sovereign Risk?
In a survey of institutional investors and members of corporate finance departments, EDHEC-Risk Institute sought reactions to the key conclusions of a study entitled “Optimal Design of Corporate Market Debt Programmes in the Presence of Interest-Rate and Inflation Risks”, which was produced as part of the Rothschild & Cie research chair.
The results indicate that the research topic is perceived as highly relevant to current investor concerns and issuers of corporate debt. Respondents suggest that the issuance of inflation-linked bonds may provide a solution to both parties. For investors, inflation-linked corporate debt could be an ideal instrument for hedging their liabilities at a time when sovereign debt is no longer considered the default asset for pension funds’ asset-liability management.
For corporations, issuing inflation-linked debt would ultimately limit the firm’s risk and increase the value of its shares. Potential issuers exhibited substantial agreement with the positive attributes of inflation-linked debt, while over half of respondents recognised the prospects for the development of a highly liquid market as a result of this type of research.
Overall, the responses reflect strong agreement with many of EDHEC-Risk Institute’s key propositions, and the central tenet of the paper: that for many firms, current debt-management practices can be improved through the issuance of inflation-linked debt.EmailSharePrint