Ups and downs

Inflation volatility has spiked in recent months amid increased inflationary concern and rising demand from investors for inflation-linked notes with embedded floors. Some investors have consequently been prompted to take a contrary view and implement strategies that take advantage of increased volatility levels. By John Ferry

Central banks around the world are struggling to keep a lid on inflation, with sharp rises in oil and food costs causing consumer prices to leap in recent months. With few analysts expecting inflation to slide back in the immediate future, investors have piled into inflation-linked notes with embedded floors in order to profit from further spikes. In doing so, investors have become net buyers of volatility, helping to drive implied volatility on inflation higher. Now, with inflation volatility