Government bond prices versus inflation

<body><table border="0" cellpadding="0" cellspacing="0" width="100%"><tr><td> <font face="garamond, times new roman, times" mstheme> <p> Inflation </p> <p> </p> </font mstheme> </td></tr></table><table border="0" cellpadding="0" cellspacing="0" width="100%"><tr><td valign="top" width="1%"><font face="garamond, times new roman, times" mstheme> <p> </p> </font mstheme></td><td valign="top" width="24"></td><td valign="top"> <p>This page uses frames, but your browser doesn't support them. </p> <p><strong><font face="Arial Narrow" size="2" color="#C0C0C0">Bonds: Inflation</font></strong></p> <p><strong><em><font face="Arial Narrow" size="2" color="#00FF00">Buy when the coloured lines trend higher,</font><font face="Arial Narrow" size="2" color="#C0C0C0"> </font><font face="Arial Narrow" size="2" color="#FF0000">sell when they trend lower</font></em></strong></p> <p><font face="Arial Narrow" size="2" color="#C0C0C0"><strong>This tool looks at the major determinant of bond prices in the long-term. It is designed not only to show the current position but also to provide a Best Guess as to the future trend. For comparability, bond price indexes have been rebased to set year-end 1994 at 100. </strong></font></p> <p><strong><font face="Arial Narrow" size="2" color="#C0C0C0">In each chart the bond price index is shown as </font><font face="Arial Narrow" size="2" color="#FFFFFF">the thick white line</font><font face="Arial Narrow" size="2" color="#C0C0C0"> on the right hand axis. The main explanatory variable, the rate of inflation uses the left hand axis, shown as </font><font face="Arial Narrow" size="2" color="#FFFF00">the thin yellow line.</font><font face="Arial Narrow" size="2" color="#C0C0C0">  A Best Guess as to the future trend of inflation is also shown on the left hand axis as </font><font face="Arial Narrow" size="2" color="#FF0000">the thin orange line. </font></strong></p> <p><strong><font face="Arial Narrow" size="2" color="#C0C0C0">The Best Guess shows the forecast rate of inflation for the current and following years. The base level is the average for the last completed calendar year. Forecasts are consensus estimates. </font></strong></p> <p><strong><font face="Arial Narrow" size="2" color="#C0C0C0">The left hand axis is inverted for clarity in showing the close relationship between inflation and long-term bond prices. Thus, a decline in the rate of inflation appears as a rising line that generally moving in the same direction as bond prices. Given that the bond market tends to discount inflation data when released, the main focus of attention is on the forecast period ahead. </font></strong></p> <p><strong><font face="Arial Narrow" size="2" color="#C0C0C0">Owing to the conversion of legacy currencies into Euros, analysis is provided on a common bond market denominated in Euros, rather than for individual countries. Historical data is provided by creating synthetic GDP-weighted time-series for the component currencies, expressed in the European Currency Unit.</font></strong></p> <hr color="#FF0000"> <p align="center"><font size="2">[ <a href="global_asset_allocation_sitemap.htm" target="_top">Site Map</a> ] [ <a href="index.htm" target="_top">Home</a> ]</font><font size="2" face="Arial"><br> </font><font size="2">[ <a href="Chart_Library.htm" target="_top">Chart Library</a> ] [ <a href="ChartLibrary_government_bond.htm" target="_top">Bond Charts</a> ]</font> </td></tr></table><table border="0" cellpadding="0" cellspacing="0" width="100%"><tr><td><font face="garamond, times new roman, times" mstheme> <p align="left"><font face="Arial Narrow" size="1" color="#C0C0C0">Copyright © 1999 Professional Investment Tools Ltd., authorised by the Financial Securities Authority. An Independent Financial Adviser. Please read Financial Health Warning and Licence Agreement. UK laws apply exclusively. Principal sources: Consensus Economics, Corel Corp., FIBV, Global Financial Data, PIT, national governments and stock exchanges. Information and opinions are based on sources believed to be reliable and accurate. However PIT does not guarantee this to be the case, and does not accept liability for any loss arising. This is for information only and does not constitute a solicitation to deal in any securities. Opinions are liable to change. Past performance is no guarantee of future success. Last modified: January 05, 2001</font><font face="Arial Narrow" size="2" color="#C0C0C0"><strong>.</strong></font></p> </font mstheme></td></tr></table></body>