Many private equity firms have been purchasing government securities that are protected against inflation because of the Federal Reserve's efforts to expand money supply. Now, these same firms that have been investing in these instruments have shown net outflows in the past three months according to data collated by Morningstar Inc.
With the recent infusion of US$2.3 trillion into the system since 2008, inflation has been kept in check, which further bolsters the appeal of bonds providing the central bank with more flexibility to stimulate the fostering of economic recovery.
Treasury Inflation Protected Securities have become the favorite of US Bancorp but has experienced a sell off in the past five years even with further programs to prop up the securities through what is known as quantitative easing. This means that the current yields for five year bonds would only allow profits for the investor if the consumer price index rises above 2.18% per year. The principal on inflation-linked debt also increases when the CPI increases.
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