UK inflation fears highest since late 2008

There is growing fear of inflation in the UK and US markets as shown by increasing demand for government securities offering protection from rising prices, reports the Financial Times.

Last week, the Federal Reserve, Bank of England and European Central Banks indicated interest rates will remain very low over the coming months and played down the risks of inflation.

However, the demand for US Treasury inflation-protected securities (Tip) has accelerated in the past month, reducing supplies of such bonds held by Wall Street dealers to their lowest level in three years. 

A Tip is akin to a Treasury, but the principal and coupon payments are adjusted to eliminate the effects of inflation.

Market inflation expectations are then calculated by comparing the difference in yields on a 10-year Treasury and a 10-year Tip. In the US, that gauge has reached the highest level in 15 months. A comparison of similar UK bonds shows it is at the highest for 11 months.