Bonds and Below Average Inflation

The 2017 AM “Mock” Exam states that Below Average inflation is neutral in bonds.

But I think it was an actual 2015 or 2016 AM where inflation below expectations was positive for bonds (outperform).

I HATE it when the curriculum contradicts itself.

I would say below expectation inflation is good for bonds as inflation above target level = increase in rates = drop in price of bonds.

Just my thoughts

can you find the actual where it contradicts? would be interested in reviewing that answer.

intuitively, I’ve never understood this concept - if prices end up lower than expected, then wouldn’t that be better for bonds? Your purchasing power did not slide as much as the bond’s inherent pricing dictated it would slide, and your relative PP is increased compared to what you paid for the bond. would love anyone to explain why equities are favourable in this climate, and bonds is neutral.


I did. In CME, something like 4.5.6 or where nominal is at, says inflation lower than expectations good (Which makes sense, our Nominal bond is being paid at a higher EXPECTED inflation rate).

In CME later, asset classes and inflation, they say Inflation at Expected or below, Neutral for bonds.

bump. in 2016 AM #9 C it states that it is better for gov’t bonds, but in the CME reading it states neutral. Anybody want to chime in with any concrete answer on this?

bump again