Governments around the world are issuing more inflation-linked bonds for a very good reason: institutional investors have a growing appetite for them. With the need to match liabilities becoming more pressing for pension funds and insurance companies as a result of falling equities, aging populations and more challenging regulatorf requirements, demand for the asset class has soared. In recent months, a number of governments have begun to meet this demand with inflation-linked bonds, also known as SOVs. "This year will be remembered as the year in which the European inflation-linked bond was transformed from an exotic product into a flow product," says Philip Brown, managing director of European public sector debt capital markets at Citigroup in London,The transformation has taken some time. In 1991, the UK was the first country to bet that inflation would be lower than investors expected. Since then, a handful Of other sovereign nations such as Sweden, Iceland and New Zealand have developed SOV programs. But also among them were hyperin-flating Brazil and Colombia, whose only way to secure long-term funds was through indexation.
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