Return on Knowledge Global Inflation-Linked Bonds 8 February 2011

2 Global inflation-linked bonds - status Developments in the past three months Returns since end-October  Global inflation-linked bonds have yielded -2,0% in return  Danish government bonds have yielded -1,8% in return The Federal Reserve’s decision on ”Quantitative Easing II” sparked rising inflation expectations In addition, stronger demand (partly influenced by a cold start to the winther) has boosted energy prices Recently, turmoil in Egypt caused oil prices to rise further with Dated Brent surpassing $100 per barrel Accumulated returns

3 Performance overview Global Inflation-Linked Bonds 4/26/2015

4 Current portfolio and key figures 4

5 What is an Inflation-Linked Bond? (nominal) yield = real yield + inflation Example Buy a Finish 10-year government bond:  Yield for 10 years: 2,7% Indirectly the buyer accept:  Real yield: 1,1% (increase in purchasing power)  Expected inflation for 10 years: 1,6% 5

6 Inflation Exposure is Needed in a Well Diversified Portfolio (When both equities and bonds post negative returns)

7 Inflation expectations have risen

8 Inflation has surprised on the upside – especially in the UK

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15 Why are Global Inflation-Linked Bonds Attractive? Basic component in a well diversified portfolio  Different by nature from nominal bonds and equities  Diversify equities better than nominal bonds Inflation risk is currently underestimated in the market  Plenty of slack in the Western world, inflationary pressures building in EM… implications for commodities, end of cheap labour?  Central banks currently give inflation second priority to growth due to the global credit crisis  Political interest in inflation “on the high side” has increased with increased issuance in government bonds and growth in public debt – and increased number of technically insolvent households

16 Inflation in a fiat money system…. 16 Source: Thomas J. Sargent, Professor of Economics, New York University

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