Barclays Plc and HSBC Holdings Plc indicate that investors are increasingly turning to inflation-linked bonds as a protective measure against rising prices. This trend is attributed to market skepticism regarding the Federal Reserve's commitment to controlling inflation, especially under the new leadership of Chair Kevin Warsh, who took office in May 2026. Warsh's consistent message of keeping inflation below 2% without providing detailed forward guidance has led to uncertainty in the bond markets.
Analysts from both banks, including Jon Hill of Barclays and Dhiraj Narula of HSBC, suggest that this uncertainty will likely lead to wider breakevens and outperformance of inflation-linked bonds over conventional ones. They specifically recommend long-maturity US inflation-protected bonds, citing concerns about the Fed's long-run commitment to inflation control. The real yield for 30-year US Treasury Inflation Protected Securities (TIPS) recently peaked at 3.04%, the highest since 2008, and currently stands at 2.93%.
The demand for TIPS has surged despite 30-year Treasury yields being near multi-decade highs, reflecting a deep unease in fixed-income markets. Stefan Koopman of Rabobank and Jorge Garayo of Societe Generale also see value in inflation-linked bonds at current real yields. Garayo notes that low inflation breakevens indicate market complacency regarding potential energy price increases. While a Bloomberg gauge of inflation-linked debt is up 0.3% this year, an index of conventional sovereign bonds has seen a 0.7% loss.
