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“I’m French, Spanish, English, Danish. I’m not one, but many. I’m like Europe, I’m all that. I’m a real mess,” says Xavier in “L’Auberge Espagnole,” the French film about the economics graduate student who spends two semesters abroad in Barcelona as part of European Union’s Erasmus program in order to learn the language, which places him in the cultural melting pot in an apartment full of international students – an experience many European students can now identify with. As Xavier returns to Paris to his employer for who the period abroad was a prerequisite, he struggles with the bland office environment and with his own identity, namely the notion of a European identity: Is it one of unity, or just difference?
Similarly, the eurozone inflation-linked bond market is “in a real mess” as a result of the current crisis. The raison d'être for issuing and subsequently investing in inflation-linked bonds is now broken.
Past performance is not a guarantee or a reliable indicator of future results. Investing in the bond market is subject to certain risks including market, interest-rate, issuer, credit, and inflation risk. Investing in foreign denominated and/or domiciled securities may involve heightened risk due to currency fluctuations, and economic and political risks, which may be enhanced in emerging markets. Currency rates may fluctuate significantly over short periods of time and may reduce the returns of a portfolio. Sovereign securities are generally backed by the issuing government, obligations of U.S. Government agencies and authorities are supported by varying degrees but are generally not backed by the full faith of the U.S. Government; portfolios that invest in such securities are not guaranteed and will fluctuate in value. Inflation-linked bonds (ILBs) issued by the various Governments around the world are fixed-income securities whose principal value is periodically adjusted according to the rate of inflation. Repayment upon maturity of the original principal as adjusted for inflation is guaranteed by the Government that issues them. Neither the current market value of inflation-indexed bonds nor the value a portfolio that invests in ILBs is guaranteed, and either or both may fluctuate. ILBs decline in value when real interest rates rise. In certain interest rate environments, such as when real interest rates are rising faster than nominal interest rates, ILBs may experience greater losses than other fixed income securities with similar durations. There is no guarantee that these investment strategies will work under all market conditions or are suitable for all investors and each investor should evaluate their ability to invest long-term, especially during periods of downturn in the market.
The Barclays Capital Euro Government Inflation-Linked Bond Index includes only Euro denominated bonds that are capital-indexed, linked to an eligible inflation index, have a minimum remaining time to maturity of one year and a minimum amount outstanding of €500 billion. Barclays Capital U.S. TIPS Index is an unmanaged market index comprised of all U.S. Treasury Inflation Protected Securities rated investment grade (Baa3 or better), have at least one year to final maturity, and at least $250 million par amount outstanding. Performance data for this index prior to 10/97 represents returns of the Barclays Capital Inflation Notes Index. The Barclays Global Inflation-Linked Bond Index measures the performance of the major government inflation-linked bond markets. The index is designed to include only those markets in which a global government linker fund is likely to invest and includes Government domestic debt only, i.e., debt issued by a government in the domestic currency of that country. Bonds in the index must have a minimum remaining life of one year on the rebalancing date. The Harmonised Indices of Consumer Prices (HICP) is an economic indicator that measures the changes over time in the prices of consumer goods and services acquired by households. The HICP gives a comparable measure of inflation in the euro-zone, the EU, the European Economic Area and for other countries including accession and candidate countries. It is calculated according to a harmonised approach and a single set of definitions. It also provides the official measure of consumer price inflation in the euro-zone for the purposes of monetary policy in the euro area and assessing inflation convergence as required under the Maastricht criteria. The Consumer Price Index (CPI) is an unmanaged index representing the rate of inflation of consumer prices in a given country. There can be no guarantee that the CPI or other indexes will reflect the exact level of inflation at any given time. It is not possible to invest directly in an unmanaged index.
No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. Pacific Investment Management Company LLC, 650 Newport Center Drive, Newport Beach, CA 92660, 800-387-4626. ©2014, PIMCO.
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