Inflation respects no political border, which means that targeting inflation-linked bonds on a global basis is a natural for investing strategy. It’s also timely. Pricing pressures are bubbling in economies around the world. Consumer prices in OECD countries (a proxy for the developed world) rose by 3.5 percent in the year through this past January-the highest pace since 2001. Inflation is also on the rise in emerging markets, including China, which reported an 8.7 percent jump in consumer prices for the year through February-up sharply from 2.7 percent for the same period a year earlier.

No wonder that the global market for inflation-linked bonds is bubbling as well. Growing demand for hedging inflation is one reason. But there’s the portfolio-diversification angle, too. Investors increasingly see inflationprotected obligations as a distinct asset class, even when compared with conventional bonds.

As it happens, the supply of so-called linkers is rising, too. More governments than ever are issuing inflation-linked bonds. The global market capitalization for sovereign inflation-linked bonds jumped 50 percent to $1.5 trillion in the two years through early 2008, according to Barclays Capital.

The U.S. remains the biggest issuer, which translates into roughly one-third of global market cap. That means that most of the world’s linkers are floated offshore on a value-weighted basis. It may surprise the casual observer to learn that Brazil is ranked fourth in market cap for inflation-linked bonds. According to a new global linkers bond index from Barclays, 19 governments (including the U.S.) are now issuing securities in this corner of the debt world.

In another sign that this sector of the bond market is coming of age, the first ETF targeting the asset class has been launched. State Street Global Advisors rolled out the first international inflation-protected bond ETF in March: SPDR DB International Government Inflation-Protected Bond ETF (WIP), which tracks the DB Global Government ex-US Inflation-Linked Bond Capped Index, a benchmark of bonds from 18 developed and emerging countries save for the U.S.

More global inflation-linked products may be coming, including some based on the new Barclays Capital Universal Government Inflation-Linked Bond Index. So says Ralph Segreti, the London-based global inflation-linked product manager for Barclays, which has been a leader in trading and analyzing linkers. In a recent interview with Wealth Manager, Segreti discusses the firm’s new benchmark, how it works and why investors should consider inflation-linked bonds as something more than a domestic asset class.

Q: What’s the rationale for the new Barclays Capital Universal Government Inflation-Linked Bond Index?

A: This index allows you to get a truly diversified global allocation and effectively buy the global real yield. It’s comprised of inflation-linked bonds issued by sovereign debt issuers from a variety of countries. So it’s a bond market index, not an inflation index. It reflects price movements on the bonds and the underlying real yield movements, as well as the inflation compensation that’s paid.

The thought process behind the inflation index’s creation is one of providing a new tool for investors as they look to globalize their portfolios, increase diversification and search for higher real yields.

In the 1990s, we started publishing inflation-linked bond indices covering the main investment-grade sovereign issuers. In the last couple of years, we’ve noticed a large increase in our business in emerging market inflation. [The growth has come] mainly from developed-market inflation investors looking for alpha opportunities, a more diversified global basket, higher real yields, greater exposure to things like food price inflation and so on. Last year we created the emerging market inflation-linked indices. Then, after consultation with investors, we decided that what the market needed was a truly global, universal index. Our new index provides the ability to invest in a globally diversified portfolio of inflation-linked bonds, which hopefully captures improved performance and diversification benefits.