Inflation risk premia both in the United States and in the euro area remained in, or close to, negative territory.
5%, seemingly weathering the downgrades on the Q1 GDP front following the retail sales miss and the upgrades to
inflation risk along with higher yields.
Managing
inflation risk is especially important for investors who have retired or are approaching retirement.
The Cleveland Fed model can produce estimates for many time horizons, and it isolates not only inflation expectations, but several other interesting variables, such as the real interest rate and the
inflation risk premium.
To the extent that
inflation risk is small at short-horizons, nominal short-term bonds are good substitutes for inflation-indexed short-term bonds.
Summary: TEHRAN (FNA)- The International Monetary Fund warned Saudi Arabia of a possible
inflation risk, urging the kingdom to take preemptive measures against the potential risk.
The ebbing of
inflation risk is now a significant positive for the economy and the bond market.
For example, one measure of expected inflation can come from a derivative known as an inflation swap, which avoids the problem of two different bonds, but it still docs not correct for the
inflation risk premium.
Of course, no one can predict the future, and interest and
inflation risk may not materialize.
FTSE Group has launched the FTSE Wealth Preservation Unit (WPU), which it says is "a stable global currency unit which aims to allow global investors to preserve wealth over the long-term by providing protection from currency and
inflation risk.
Two primary factors are the compensation investors require to hold a security that is less liquid than its nominal counterpart, termed the illiquidity premium, and the insurance value they attach to obtaining protection against
inflation risk, known as the
inflation risk premium.
Nonetheless, the breakeven spread is still the cost one pays to insure against upside
inflation risk, and at present we think that this insurance is very cheap.
