Hedging against inflation: International evidence on investor clientele effects in the bond market

Martijn Boermans

Working Papers from DNB

Abstract: Governments across the world have issued inflation-linked debt to finance their deficits. Recent advances in asset pricing models recognize that there may be clientele effects that affect relative prices, especially in bond markets. We study investor demand for inflation-linked bonds using detailed bond portfolio data. Our analysis reveals pronounced market segmentation: insurance companies, with predominantly nominal liabilities, underinvest in inflation-linked securities, while pension funds overinvest. Investors hedging inflation risk exhibit a strong preference for bonds indexed to domestic rather than foreign inflation. A regulatory reform announcement provides quasi-experimental evidence that the demand for inflation-linked bonds may be shaped by regulatory requirements.

Keywords: sovereign bonds; inflation-linked bonds; TIPS; investor clientele; securities holdings (search for similar items in EconPapers)
JEL-codes: F21 G11 G15 G22 G23 (search for similar items in EconPapers)
Date: 2025-06
New Economics Papers: this item is included in nep-fmk, nep-ifn and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:dnb:dnbwpp:838

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