How Inflation Affects Government Bonds
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Inflation is the silent rival of fixed coupons. Central banks fight it with rates, which then hit prices via duration.
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How Inflation Affects Government Bonds — the mechanics
There are two hits: the real value of coupons, and the yield rise that cheapens the bond today. Linkers reroute the first hit. Nothing but a short maturity (or a floating rate) fully dodges the second.
Unexpected inflation is the enemy of long nominal bonds. Expected inflation is already in the yield. Linkers transfer part of that risk to the index, leaving real-rate risk.
Central banks hiking into inflation is the usual transmission to prices. Supply (more issuance) can add a term-premium kick.
Measure inflation in the currency of the bond. UK RPI on a T-note is the wrong pair.
Official sources (International guides)
Primary statistics and prospectuses for International guides are published by the issuer, not by this newsroom. The labelled links at the end of this page go to those official sites (DMO, TreasuryDirect, Finanzagentur, MEF, AFT, SNB or ECB as relevant).
Our live board is a teaching overlay: dated prints, named sources, estimated ISIN lines. It is not a replacement for the issuer’s calendar.
Galvenie secinājumi
- Unexpected inflation is the enemy of long nominal bonds.
- Prices and yields change. When this site quotes them, it dates them on the live board.
- Credit of a G7 government in its own currency is not the same as a stable screen price, and not the same as a bank deposit.
BUJ
- Is 2% inflation ‘fine’ for bonds?
- If 2% was already priced, yes. Surprise inflation — 2% becoming 5% — is what damages long nominals.