Bond Market Indexation Strategy - Essay Example

Bond Market Indexation Strategy To consider the need and motivation of inflation in the global debt market, various developed markets propose inflation protected security in terms of bond connection to a price index of prospective customers. These securities can be groped in an asset class of inflation protected securities within every particular country, and inflation protected securities issuance in many countries. For example, the crisis in Libya about the increase of oil prizes makes the investor to reluctantly step into the protection of inflation.

To keep against the wearing away of returns, inflation protected securities are mainly government issued bonds whereby the inflation is adjusted according to the principal on each bond (Pistolese Clifford, 16). Protection of inflation is the major motivation for investing in IPS either in a global basis or single market. Moreover, there is an enhanced alpha potential and diversification in a global approach to inflation protected security. Pistolese Clifford added that, inflation pressure comes as a result of many sources that exist in both local and global economies (16).

But traditional bond are not regarded as inflation adjusted. Inflation can therefore reduce the return of investment of traditional equity as only some inflation percentage may be considered through equity returns. In conclusion, not only global IPS protects against prolonged inflation demands but also improve alpha potential as well as diversification to global bond allocation. Work citedPistolese, Clifford. Lifespan Investing: Building the Best Portfolio for Every Stage of Your Life: Fundamental Analysis, Part 1 Rockefeller: McGraw Hill Professional (2007) p16. Press.