Deutsche Bank has launched a suite of inflation indices that enable investors to hedge their inflation risks in both G10 and emerging market currencies. The db Liquid Inflation suite of indices offer investors the opportunity to hedge exposures according to region – global, G10 or emerging markets.
The db Liquid Inflation Index (G10) measures the total return performance of the inflation linked sovereign bonds issued by Australia, Canada, France, Germany, Greece, Italy, Japan, Sweden, UK and US.
The db Liquid Inflation Index (EM) reflects the total return performance of inflation linked bonds in key developing emerging market countries including Poland, Brazil, Chile, Mexico, Uruguay, Israel, South Africa, Turkey and South Korea.
The bank’s db Liquid Inflation Index Global tracks the total return performance of a basket of liquid inflation linked sovereign and quasi-sovereign bonds issued by both the G10 and EM countries. It is weighted with 85% exposure to the G10 index and 15% to the EM.
In back testing dating back to February 2007, the db Liquid Inflation Index (EM) had an annual return of 21.1% with annualised volatility of 9.25%. Also dating back to February 2007, the db Liquid Inflation Index (Global) had a 13.55% annual return with annualised volatility of 5.95% while db Liquid Inflation Index (G10) had an annual return of 9.2% with annualised volatility of 6.8%.
Clients can access the indices via a variety of products including notes, swaps or delta-1 certificates. The indices are total return indices, calculated as the sum of price changes, gain or losses on repayments of principal and the coupon received or accrued.
Michele Faissola, global head of rates, says: “Inflation continues to be a major concern for investors throughout the world and these indices will facilitate access to this rewarding and often under-allocated asset class for our clients.”
The indices follow on the heels of last month’s launch of the db Asian Inflation Proxy Index which enables inflation hedging in Asia, excluding Japan (see Squawkbox, 25 August).
Deutsche Bank ramped up its inflation expertise last year by bringing in Daragh McDevitt as head of inflation structuring and Paul Canty as a director, responsible for complex inflation products. McDevitt and Canty both joined from ABN Amro. At the same time Brice Benaben joined as head of inflation trading from Citi. All three report to Foresti.