European inflation-linked bonds?

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europeanwizard
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European inflation-linked bonds?

Post by europeanwizard » Thu Jul 30, 2020 9:08 am

I just read an interview with Russell Napier, a Scotsman who writes about the market for institutional investors: https://themarket.ch/interview/russell- ... nt-ld.2323

The following bit caught my attention:
As an investor, how do I protect myself?

European inflation-linked bonds are pretty attractive now, because they are pricing in such low levels of inflation. Gold is obviously a go-to asset for the long term. In the next couple of years, equities will probably do well. A bit more inflation and more nominal growth is a good environment for equities. I particularly like Japanese equities. Obviously you wouldn’t buy government bonds under any condition.
I don't understand what is meant with "European inflation-linked bonds", what does he mean here?
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Re: European inflation-linked bonds?

Post by WhiteElephant » Thu Jul 30, 2020 10:40 am

I assume he means something like iShares ICBI? Not sure how though as he also states: 'Obviously you wouldn’t buy government bonds under any condition'.
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Hal
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Re: European inflation-linked bonds?

Post by Hal » Thu Jul 30, 2020 10:46 am

In Australia you can purchase the bonds from the Government via the stock exchange - no ETF needed.
Perhaps you can do that with European countries?

https://www.asx.com.au/products/bonds/e ... -bonds.htm

Note they are linked to the CPI which is a farcical number down here ;)

Edit: Just discovered there are Corporate Inflation Linked Bonds, perhaps that's what is being referred to?

https://www.investopedia.com/terms/c/cils.asp

As an aside, this paper is interesting
<snip>
The volatile graph indicates that gold did not offer good protection against inflation in Switzerland during the period analyzed.
<snip>
https://www.credit-suisse.com/pwp/am/do ... en_web.pdf

For fun, replacing bonds/cash with 50% TIPS - How would a similar approach work for Euro PP'rs?
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europeanwizard
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Re: European inflation-linked bonds?

Post by europeanwizard » Thu Jul 30, 2020 2:05 pm

Hal wrote:
Thu Jul 30, 2020 10:46 am
Just discovered there are Corporate Inflation Linked Bonds, perhaps that's what is being referred to?
Yeah, good find. That must be what he's referring to.

As for TIPS, we don't have those in the EU, as far as I know. Good graph. They're interesting.
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Hal
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Re: European inflation-linked bonds?

Post by Hal » Thu Jul 30, 2020 2:53 pm

europeanwizard wrote:
Thu Jul 30, 2020 2:05 pm
Hal wrote:
Thu Jul 30, 2020 10:46 am
Just discovered there are Corporate Inflation Linked Bonds, perhaps that's what is being referred to?
Yeah, good find. That must be what he's referring to.

As for TIPS, we don't have those in the EU, as far as I know. Good graph. They're interesting.
Chapter 5 may be helpful

In this chapter we examine the relationship between inflation in Switzerland and inflation in the UK, the USA and Europe. There are inflation-linked bonds for these three markets in addition to a well developed derivatives market.

Maybe some other forum members can help on Euro TIPS?

Unfortunately I know nothing about them :D
https://www.youtube.com/watch?v=HblPucwN-m0
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Re: European inflation-linked bonds?

Post by AllWeatherPP » Mon Aug 10, 2020 5:43 am

europeanwizard wrote:
Thu Jul 30, 2020 2:05 pm
Hal wrote:
Thu Jul 30, 2020 10:46 am
Just discovered there are Corporate Inflation Linked Bonds, perhaps that's what is being referred to?
Yeah, good find. That must be what he's referring to.

As for TIPS, we don't have those in the EU, as far as I know. Good graph. They're interesting.
Hello.
I think he means Government Inflation Linked Bonds, not Corporate. He says to avoid nominal government bonds though.

He is in line with the recent publication of Bridgewater, the company that runs the famous All Weater fund.
https://www.bridgewater.com/grappling-w ... everywhere

As far as I understood, they are avoiding all nominal bonds of developed countries like Europe and the US now too and shift more into IL Bonds and gold. That would be a revolution, since their success was based to a large degree on longterm (nominal) government bonds. Not sure if I understood it 100% correctly since English is not my native language.

And there are indeed TIPS/ IL Bonds for the EU. For example: iShares € Inflation Linked Govt Bond UCITS ETF

The advantage for IL Bonds is that they have unlimited potential for price increases, since inflation/real yield has no upper limit. For nominal bonds though Bridgewater estimates that interest rates of about -1% would be the end, at that point cash would probably be much more attractive than nominal bonds. Their upside potential is limited, with huge downside potential if rates go up again.
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Re: European inflation-linked bonds?

Post by europeanwizard » Sat Aug 15, 2020 4:21 am

AllWeatherPP wrote:
Mon Aug 10, 2020 5:43 am
And there are indeed TIPS/ IL Bonds for the EU. For example: iShares € Inflation Linked Govt Bond UCITS ETF
This is good news to me. The ISIN is IE00B0M62X26 and my broker (DEGIRO) does not charge costs when trading. The underlying assets aren't super great, though. France might be okay, but the rest is Spanish and Italian government bonds. Still, this fund looks like the best choice for now.
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