-
I don't understand I'm afraid - why is duration (assuming you mean bond duration?) relevant, if the fixed / floating schedules are (again with the assumption) close enough.
I don't really get why equity risk premium is relevant either, given this is all cash / interest rate.
Then again, I've not looked at price / risk factors in that level of detail for a verrry long time.
NotThamesWater-
I don't understand I'm afraid - why is duration (assuming you mean bond duration?) relevant, if the fixed / floating schedules are (again with the assumption) close enough.
Yeah, bond duration. Most of the UK inflation linkers are very long-duration instruments. They have all performed poorly in the last 3-6 months despite rising inflation because the impact of the long end of the forward curve rising has outweighed the near-term benefit from higher inflation.
I don't really get why equity risk premium is relevant either, given this is all cash / interest rate.
It's an opportunity cost point. You could buy equities instead of these instruments and capture the equity risk premium. You are sacrificing that risk premium to get a pretty ineffective hedge.
NickCJ
You can buy index-linked gilts but the issue is massive duration & sacrificing equity risk premium.