... Table2:RatingagencycategoriesanddefaultratesS&PandFitchMoody's Oneyearavergedefaultrate*Fiveyear averagedefaultrate*AAA Aaa 0.00% 0.16%AA Aa 0.07% 0.72% A ... Country,IndustryandRatingsBreakdown21Amountpaidbackatmaturity.22Theirvalueadjustedforinflation.Thepriceofgoodsgoesupwithinflation.However,thevalueof a bondwillnotandsoitbecomesworthlesswhencomparedto“real”assets.Thisisparticularlythecaseinperiodsofhighinflation.Anindexlinkedgilthowever,willriseinvalueinlinewithinflationandthecostofgoodsandsomaintainits“real”value.23 A companythatissetupspecificallytooperate a largeprojectsuchasaninfrastructureproject.24 A bondindexissimilartoanindexliketheFTSE100index.Ithasrulesforinclusionandismarketcapweighted.14Intermsofpensionandinsuranceassetsthisisequivalenttoabout1.7%oftotalassetsor5.3%ofdebtassets.Ifallthemoneyfortheseinvestmentsinefficiency,powergeneration,powernetworks,heating,waste,transportandR&Dweretocomesimplyfromtheseassetsandnonefromindustryorbanking(anextremeview)thiswouldmean a re‐allocationof1.7%oftotalassetsor5.3%ofbondassetsintothissectorperyearforfiveyears(seeTable5).In2015,thiswouldleadtoaveragepensionfundandinsurancecompaniesowning£265billionofassetsinthissectororalmost10%oftheirtotalassets.Table5:AllocationtoGreenBondsinPensionFundsandInsuranceCompanies Annualallocationas a percentageofassets(peryear)Annualallocation(peryear)Allocationby2015Allocationas a percentageofassetsby2015Totalassets ... tsingiltstobothbuyersandsellers,althoughnottootherGEMMs.Theyalsohavetomaintain a reasonablemarketshare−meaningthattheyhavetoactuallybuyandsellbonds(ratherthanjustmakingmarketsandnottransacting)inboththeprimarygiltauctionsandthesecondarymarkets.As a benefit,theyaretheonlymarketparticipantsthatcanbuygiltsdirectly36 A bookis a trader’sportfolioofbonds.Thiswillbemadeupofbothrealbondsandderivatives.37Seesection A. 4.38 A listofthecurrentGEMMsisinAppendix A. 2.39ThegiltissuingarmoftheUKTreasury.19Indexbondsarethosewhosecouponand/orprincipal21arenotfixedbutcanchangewithreferencetosomesortofindex.Thebestexampleofthisisindexlinkedgilts(“linkers”).Here,thecouponandprincipalrise(andfall)inlinewithinflationofferingprotectionagainstinflation.Conventionalbonds,althoughtheymayoffer a higherinitialinterestrate,canseetheirrealvalue22whittledawayin a highinflation environment. Forthisreason,pensionfundsandinsurancecompanieswithverylongterminflationlinkedliabilitieslikelinkers.However,itisworthmaking a notethatlinkerssufferfromsignificantlywiderbid/offerspreadsthanconventionalgilts,duetotheirlowerliquidity.3.4.3....