BCA’s golden rule for Australian inflation-linked bonds
Investing.com - Analysts at BCA have introduced a framework for taking long/short positions in the Australian inflation-linked bonds market compared to nominal government bonds. This strategy leverages the relationship between Australian ILB excess returns and inflation surprises.
BCA's model for Australian inflation predicts that it will fall within the range of 2.6% to 3.3% over the next 12 months. This suggests a high probability that headline inflation will exceed current market expectations of 2.6%. Analysts suggest that with inflation expected to remain sticky in Australia, and given the current market expectations, investors should consider an overweight stance on ILBs versus duration-matched nominal government bonds over a 12-month investment horizon.
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