UK pension funds have been selling their gilt portfolios to buy the corresponding swaps because of a price anomaly that enables them to generate the same return for less money.

Inflation swaps yield between 0.25% and 0.45% above the comparable index-linked gilt, known as a linker, and on conventional gilts the yield with swaps is between 0.3% and 0.4% higher. The premium is high on long tenor swaps and is at its highest level for three years, according to research by the Royal Bank of Scotland.