How to read asset swap prices on inflation-linked bonds

Calyon addresses the issue of considering inflation-linked bonds (ILBs) versus standard ones, on a relative value basis. Are they cheaper? How to analyse the spread between ILBs and standard bond asset swaps?

In addressing these questions, the natural response comes from looking at each bond's asset swap level versus its reference nominal bond's one. This reference bond is the one used to calculate the inflation breakeven. On the European Monetary Union (EMU) ILB market, par/par asset swap is the market standard. However, depending on the adopted strategies, investors could find this reading incomplete and not taking fully into account the ILB market specifics: impact of past inflation, credit, repo