Corporate investors are not reaping the benefits they expect to get from inflation-indexed bonds. Introduced in 1997 to improve federal funding and expand the US debt securities market, the bonds are not likely to perform favorably in the current economic environment, which has been marked by disinflation and stable monetary policy. Given that the Federal Reserve seems to be determined to maintain its anti-inflation position, the inflation-indexed bonds are not likely to yield high returns. Nevertheless, the government plans to auction another 10-year issue and a 30-year issue of these bonds in 1998. Investors would do well to avoid these new securities as long as the inflation defense is still in place.
...Page 6851. (``junk bonds'') rated B3 through Ba1 by Moody's Investors Servi... and other asset-backed securities; inflation-indexed bonds issued both by governments and corpo...
The role that Treasury inflation-protected securities (TIPS) play in a diversified bond portfolio got a big boost in 2007. As many investors labored to eke out gains amid crumbling credit markets, the stars aligned for inflation-indexed bonds, and the Lehman Brothers TIPS index returned an impressive 11.7 percent. If you buy a conventional Treasury, you receive the same interest payment semiannually for the life of the bond. With TIPS, the Treasury adjusts the principal value of a bond each month (with a two-month lag time) to keep pace with inflation. A higher principal value also lifts interest payments.
I wrote a few weeks ago about inflation and how it seems to be making a comeback. I talked about the corrosive effect it can have on investments. Today, I'm going to write about one way investors can protect themselves. They can invest in inflation-indexed bonds.
Simply balancing portfolio risk and client expectations is no longer adequate for advisors. Instead of simply growing clients' assets at a reasonable rate of return, clients now expect to have a level of income that can sustain them for the rest of their lives. Few would disagree that the best opportunity to outpace inflation is a diversified portfolio of stocks and bonds over a long period of time. But fixed indexed annuities provide two advantages that offset fluctuations in account value and income. First, a fixed indexed annuity mitigates volatility by stabilizing the account balance. Second, income riders provide a more dependable income regardless of market performance. With most fixed indexed annuities, clients know that they will always have their original balance minus any with...
... a clear tendency to issue 'plain vanilla' bonds, while there is less emphasis on issuing foreign c... innovative instruments, such as inflation-indexed bonds. . 1. Introduction . The working env...
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