UK pension funds look to hedge against falling inflation

"Pension funds have left the 0% floor and the 5% unhedged on the basis that the RPI has never reached 5% or fallen below 0%," says Kara Lemont Sportelli, London-based head of interest rate and FX structuring at BNP Paribas. "But these funds have risk if inflation is negative because they will have to grow those pension liabilities at 0%, where their inflation hedge is going to be negative. Therefore they are looking at notes which pay a coupon rate which embeds a floor on the RPI at 0%."


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