The Return to Inflation-Linked Bonds | FTSE Russell Index Ideas

Why It Matters

International inflation‑linked bonds give investors a potent tool to diversify away from dollar‑denominated debt and capture attractive real‑yield opportunities, enhancing portfolio resilience amid inflation and geopolitical uncertainty.

Key Takeaways

• Investors seek non‑dollar exposure via international inflation‑linked bonds.
• FTSE Russell’s WILC and EMMLC indices total $1.3 trn outstanding.
• Real yields now attractive, offering modest break‑even inflation rates.
• Emerging‑market inflation securities have shorter indexation lag than developed markets.
• ETFs show strong inflows, highlighting growing demand for global ILS.

Summary

The podcast explores the renewed interest in international inflation‑linked securities as investors look to reduce US‑dollar concentration. FTSE Russell’s flagship indices – the World Inflation‑Linked Index (WILC) and the Emerging‑Markets Local‑Currency Index (EMMLC) – together represent about $1.3 trillion of outstanding securities, a size that now exceeds several traditional bond benchmarks.

Jack Fischer points out that real yields have risen to levels that make these bonds attractive, with break‑even inflation rates remaining modest. Developed‑market ILS typically have longer duration and a three‑month indexation lag, whereas emerging‑market securities adjust within weeks, offering quicker inflation reflection. The overall fixed‑income market remains dominated by nominal bonds ($37 trillion), but the ILS segment is gaining traction.

ETF data underscores the trend: US TIPS ETFs attracted $18 billion in inflows last year, while international income ETFs have pulled in $8.2 billion YTD, and EM local‑currency ETFs added $1 billion. Performance has been strong even amid recent geopolitical shocks, such as the Gulf war, driven by both inflation hedging and local‑currency appreciation against the dollar.

For investors, global inflation‑linked bonds provide a dual hedge—against rising prices and dollar exposure—while offering attractive valuations relative to historic negative real‑yield periods. Monitoring real‑yield dynamics and regional indexation lags will be key to integrating these assets effectively into diversified portfolios.

Original Description

In this episode of FTSE Russell Index Ideas, Jack Fischer, US fixed income, currency and commodity product lead at FTSE Russell, talks about the recent revival of investor interest in inflation-linked bonds and explains how FTSE Russell is catering to this demand via a range of inflation-linked indices.

0:00 Introduction

1:18 Why inflation-linked bonds are seeing renewed interest

2:47 How big is the inflation-linked market?

3:49 Categorisation and investment demand

5:42 Differences between SILSI, WILSI and EMILSI

7:43 Inflation-linked bond market performance

10:28 Finding out more about inflation-linked securities

Watch the full series here: https://www.youtube.com/playlist?list=PLs_YjOh3pCYiJlgj7gxsEqG5l84Cyo1Sz

To listen on your preferred podcast platform go to https://pod.link/1824483218

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