Emma Moriarty

"The marginal instrument we'd add to is inflation linked bond. We're very short dated because we're worried about the same sets of fiscal concerns at the long end... we can focus much more about the inflation accrual." The energy shock is driving near-term inflation higher, making inflation-linked bonds highly attractive. However, massive government borrowing creates fiscal sustainability risks at the long end of the yield curve. Short-dated TIPS capture the inflation upside without exposing the investor to long-duration fiscal risks. LONG VTIP to protect against sticky, supply-driven inflation while avoiding duration risk. Inflation plummets unexpectedly, reducing the accrual benefit of the bonds.