Reading 18 pg. 90 Exhibit 26

CFA Level III Economics
#1

when Inflation expectations are rising should the effect on Real Bond Yields be rising instead of falling as stated in the exhibit? As investors would want more yield to compensate for the expected inflation?

It would make sense if they said when Inflation “is” riseing that real yields would fall but not sure about the expectations rising. Am I looking at this incorrectly?

thanks

#2

This exhibit is specific for Inflation Indexed Bonds. When Inflation increases - the Price of the IIB increases to keep pace with the inflation (since there is a Real Yield component as well as an Inflation component) - and as a result - the yields would fall.

#3

thanks CPK…def missed that it was just related to the IIB…makes sense now