Breakeven Inflation Analysis

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Book Description

The corking inflation of the 1970s inward the developed countries provoked potent economical (and political) reactions. In finance, investors searched for ways to protect themselves from inflation. The U.K. launched the start modern inflation-linked bonds inward 1981. In add-on to beingness of involvement to investors looking for protection against inflation, these bonds likewise supply a market-based mensurate of inflation expectations. Since investors stimulate got “skin inward the game,” the resulting forecasts mightiness last amend than a purely survey-based inflation forecast. More reliable inflation forecasts should last useful for policymakers that aim to command inflation.

This study discusses the breakeven inflation charge per unit of measurement that is implied yesteryear pricing inward the fixed income markets. For those amongst a casual involvement inward the subject, it is in all probability practiced plenty to thought those inflation breakeven rates every bit a market-implied forecast for inflation. However, if 1 wants to delve into the analysis, it is necessary to come upward to grips amongst the complications inward the subject. Is the forecast biased? Are at that topographic point technical factors inward the bond marketplace that behavior upon pricing? The objective of this study is to offering an intermediate-level introduction to these issues. The target audience is either those amongst an involvement inward finance together with who are unfamiliar amongst inflation-linked bonds or economists who desire to empathise amend the factors that behavior upon inflation breakeven rates.

Book Information

The paperback edition is 130 pages, excluding terminate matter. (The page count could alter slightly every bit a outcome of formatting changes before publication.) This includes an appendix, which was a reprinted department taken from the before mass Interest Rate Cycles: An Introduction.

The writing trend is to a greater extent than advanced than before BondEconomics titles, amongst the target audience beingness economists interested inward agreement the mechanics of the inflation-linked bond market, or marketplace participants who want to stimulate got a greater agreement of the forces affecting inflation-linked pricing. Source code used for roughly numerical examples is establish inside the Python SimplePricers module: https://github.com/brianr747/SimplePricers

ISBN Information

• Paperback ISBN: 978-1-7751676-2-4
• Kindle ISBN: 978-1-7751676-3-1

Table Of Contents

Chapter 1  Overview

1.1  Introduction

1.2  The Eras of Inflation together with Flat-flation

1.3  About This Report

Chapter 2  Breakeven Fundamentals

2.1  Inflation-Linked Bonds together with Breakeven Inflation

2.2  Inflation Index Basics

2.3  Seasonality together with Inflation Forecasts

2.4  Daily Index Calculations

2.5  Inflation-Linked Bond Structure together with Cash Flows

2.6  Inflation Swaps

2.7  Curve Fitting Concepts

2.8  U.K.-Style Linkers

2.9  Credit together with Index definition Risk

Chapter 3  Breakeven Market Analysis

3.1  Introduction

3.2  The Role of Energy Prices

3.3  Short-Term Inflation Forecasting

3.4  Breakevens Versus Forecasts

3.5  Can We Estimate the Inflation Risk Premium?

3.6  Hedge Ratios

3.7  Principal Put

3.8  Tax Treatment

Chapter 4  Macro Considerations

4.1  Introduction

4.2  Inflation Breakeven Matters, Not the Real Yield

4.3  Inflation Targets together with Fair Value

4.4  Inflation Forwards together with Valuation

4.5  Directionality

4.6  Lack of Issuers

4.7  Euro Area

4.8  Hedging Efficiency together with Asset Allocation

4.9  Final Remarks

Appendix

A.1  Inflation Breakeven Directionality (From “Interest Rate Cycles”)

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