Inflation-linked bonds catch on in Europe
Pension funds in the Netherlands are following the lead of their peers in the UK by using more inflation-linked products to achieve liability-driven investment. Alan McNee reports
Inflation-linked bonds have been around for many years, and are similar to conventional bonds but, as the name might suggest, with cashflows linked to inflation. In recent times, a fairly liquid market in inflation swaps has also emerged, which can be tailored to precisely match the liabilities or cashflows of the buyer.
Zero-coupon swaps involve the buyer and seller agreeing on a fixed rate for inflation over the life of the swap, then settling according to how much higher or lower inflation
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