M&G’s Lord warns Bank switch to CPI could create two-tier gilt market

M&G inflation linked corporate bond fund manager Ben Lord says a switch to CPI-linked gilts could create a two-tier gilt market.

Lord, speaking at the Fund Strategy Investment Summit, says the Bank of England, through the Debt Management Office intends to issue CPI-linked gilts over the course of the next two years.

He says the move could lead to a market where both are traded until RPI-linked gilts tail off or the Bank could simply swap existing RPI-linked gilts for newer CPI-linked options.

Lord says: “Now given what they’ve done to public sector pensions and given the fact that they’re trying to reduce future liabilities our guess is that there is a pretty high chance they’re going to take out RPI-linked bonds and swap them for CPI-linked bonds.

“If they’re going to do that that’s great if you’re investing in a fund like this earning RPI because they’re going to have to pay something close to, if not more than, the purchase value of the difference between RPI and CPI reflected over the bond’s life.”