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Practical Applications of Incorporating Linkers in a Global Government Bond Risk Model

The introduction of inflation-linked bonds into a portfolio allows bond investors to take bets on inflation in countries around the world. These instruments, known as linkers, refine the way investors manage portfolio risk, because they allow them to separate out exposure to inflation risk, says Marielle de Jong, Head of Fixed-Income Quantitative Research at Amundi Asset Management in Paris, France. But linkers act within a portfolio in surprising ways, she warns. The risk-budgeting process is not always as simple as it seems. De Jong proposes a multibond model to assess inflation risk in internationally invested government bond portfolios and suggests an investment strategy. This Practical Applications report highlights the findings in Incorporating Linkers in a Global Government Bond Risk Model , which was published in the Winter 2013 issue of The Journal of Portfolio Management .