India embarks on Rs150bn linker programme India sold its first inflation-linked bonds in 15 years as it seeks to develop a new funding avenue and curb the widespread use of gold as a hedge against price increases. The Reserve Bank of India sold 10bn rupees ($177m) of the 10-year bond at a real yield of 1.44 per cent above the wholesale price index it references, which has averaged 7.3 per cent over the past fiscal year. The central bank plans to issue up to 150bn rupees of so-called "linkers" over the next year, holding auctions in the last Tuesday of every month. The sales are part of a plan to reduce local gold bullion purchases, which have contributed to a yawning current account deficit. India is the world's largest gold buyer, and although much of the purchases are linked to wedding gifts, some wealthy Indians are also seeking a hedge against elevated domestic inflation. The linkers will first be offered to institutional investors, and marketed to retail investors from October. India last attempted to sell inflation-linked debt in 1997, but those securities only indexed the principal face sum to inflation, not the interest payments. The linkers sold on Tuesday have both the principal and coupon indexed to inflation. India is the latest country to dive into the inflation-linked market. The asset class is dominated by issuance from rich, advanced countries such as the US and UK, but the value of outstanding linkers in emerging markets has swelled to about $500bn. David Dyer, a senior portfolio manager at Axa Investment Managers, said that more developing countries would be likely to issue linkers in the future, and issuance from existing markets would probably grow. "We expect that emerging markets, where inflation is often higher, will account for a greater share of this over time," he said. By doing this they can diversify their investor base, taking advantage of the increased structural demand from long-term investors for inflation protection. Nonetheless, many fund managers have shunned emerging market linkers, as the securities are often exceptionally difficult to trade. "The liquidity isn't very good in these linker markets," one asset manager notes. In practice, emerging market linker bonds still often sell off when inflation is high, despite the protection they offer. Moreover, these new linker markets also tend to fall between index cracks. Most emerging market debt funds use benchmarks that do not include inflation-protected bonds, and most linker-dedicated funds use developed market gauges that exclude emerging markets. Appetite for inflation-linked bonds has dipped around the world this year as economic growth has disappointed and inflationary pressures have eased - and even sparked deflationary concerns in some western countries. Nonetheless, many fund managers and analysts are optimistic that the emerging linker market will continue to grow and deepen over time, as investors seek out assets that offer inflation-protected returns.