Inflation-protected government bonds (Tips)
If held to maturity, these provide a return equal to the current real bond yield plus the actual rate of inflation. They are free of default risk, even in the case of hyper inflation, so are good long-term hedges against inflationary Armageddon.
During the great inflation shock of the 1970s, global equities and bonds suffered in tandem. Standard US portfolios, holding 60 per cent equities and 40 per cent conventional bonds, produced real returns of minus 1.5 per cent a year during the entire decade.
In the first three years of the inflation shock from 1971-74, investors lost 10.5 per cent a year in real terms in these portfolios.
Gavyn Davies FT 13 December 2020
https://www.ft.com/content/b9a4cea5-b491-4f97-8beb-ee8651629247
Spectre of higher inflation threatens historic bond rally
“Inflation staying low and well-behaved is the foundation on which everything in markets is currently priced,” said Karen Ward, chief market strategist for Europe at JPMorgan Asset Management. “Investors’ assumption is that central banks will be able to stay accommodative well into the economic recovery. If inflation picks up in a way that’s not expected, that would challenge the market’s entire view.”
FT 16 Decenber 2020
https://www.ft.com/content/88cbae4e-b90d-4061-9786-f30c4c412c39
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