Slowing inflation weakens structured note demand, Barclays Capital

Falls in the price of oil have weakened demand for inflation-linked structured notes, says Benoit Chiqrui, director of inflation trading at Barclays Capital in London. The recent US$40 fall in prices has caused inflation worries to fade along with demand for inflation-linked structured notes, said Chiqrui. The fall in headline inflation has been fastest in the US.

Although fear of inflation in the US has decreased, the US Federal Reserve System remains concerned about consumption levels that are leading to wage inflation, said Alan James, Barcap’s director of global inflation-linked strategy research. All of which has enhanced the value of Treasury Inflation Protected Securities (TIPS) as a defensive instrument as inflation continues to grow and nominal yields increase. In Europe, wages are more rigidly linked to inflation; however there are not as many

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