Seasonally adjusted prices for inflation-linked bonds

Inflation-linked bond markets are used ever more frequently by policy-makers, economists and commentators to assess the market's opinion about the future path of inflation and real yields. But important effects such as seasonality and carry are often ignored, which can make such assessments seriously flawed. There is a lack of consensus among investors and traders on the best way to account for these effects. Paul Canty proposes a method for calculating the seasonally adjusted clean price of inflation-linked bonds that can be used to isolate and remove seasonality and short-term carry factors

Inflation is highly seasonal. Food and energy prices ensure that inflation is also volatile from month to month. One-off future inflationary events may be known about months in advance. These three factors apply to the consumer price index (CPI) measures used in the calculation of global inflation-linked bond (ILB) markets. They make it difficult to extract meaningful information from the prices of ILBs. In particular, they hide the trend rate of inflation, which is, arguably, the most valuable

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