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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-
Got you.
I tend to look at things from like this at a non-portfolio level, and seldom cross-asset (probably as most of my experience has been within specific asset classes.
I also like the that with an inflation-linked hedge, you reduce the number of unknowns (no doubt paying through the nose for it though), much in the same way that you might choose a fixed rate mortgage over a floating rate.
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.
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.