Jim Keohane says real return bonds rarely trade because institutional investors value them too much to give them up. Find out more.
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Pension funds benefit in periods of rising inflation because cost of living adjustments are almost always tied to the consumer price index. The coupon on the bond is also tied to the index, so it pays out more, which offsets the pension fund’s liability.Article content “For example, in periods of high inflation, HST revenues will be higher because it is a fixed percentage of that inflated price,” Keohane said. “It is also a good hedge for governments in periods of lower inflation because the coupon payout on the bonds would be lower.”
“If the current environment and pricing is not attractive for issuing real return bonds, there is nothing compelling the government to issue them,” he said, adding that Ottawa could simply switch to issuing nominal bonds until market conditions are more attractive.Article contentThe government said it had consulted with market participants before making the decision, and cited low demand as a principal reason for ceasing issuance of real return bonds.
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Freeland's rationale for ending inflation-adjusted bonds 'not legitimate': veteran pension fund managerJim Keohane says real return bonds rarely trade because institutional investors value them too much to give them up. Find out more.
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