Salient to Investors:

Bond investors are lowering their outlook for inflation in developing markets to a 9-month low.

Alessandro Bee at Bank Sarasin sees moderate growth compared to recent years, which should keep inflation in check and create a really nice environment for local bond markets.

Bank of America said investors see rising inflation in the biggest emerging markets including China and Brazil, but tame inflation outlooks elsewhere will allow policy makers to focus on boosting the weakest economic growth since 2009.

The IMF predicts inflation in developing markets will remain at 6.1 percent in 2013, and growth will be 5.5 percent versus 6.6 percent average growth rate over the past decade.

Phillip Apel at Henderson Global Investors says inflation in emerging markets won’t accelerate strongly, making their bonds more attractive than those in the developed world, whose government bonds are out of favor and offer little protection against a rise in yields.

Bloomberg estimates Brazil’s consumer price index will average 5.5 percent by 2014, Turkey’s will average 6.1 percent in 2 years.

Michael Spencer at Deutsche Bank predicts the Philippines will raise benchmark rates 3 times in 2013 to stem inflation.

Paul McNamara at GAM Investment said the world has priced in for permanently low inflation, with no question that it is going to shoot up – is reducing holdings of longer-dated fixed-rate bonds and buying inflation-linked debt securities.

Koon Chow at Barclays said most emerging-market central banks will delay raising interest rates and tolerate faster price increases to assure economic recovery; benefiting inflation-linked bonds over fixed-rated securities.

Alberto Ades at Bank of America says it would take greater-than-forecast growth and a 25 percent surge in food prices to really stoke inflation, and even then inflation would be 1.1 percent lower than the July 2011 peak.

Lazlo Belgrado at KBC Asset Mgmt likes emerging market local bonds, saying it’s too early for the growth-driven inflation scare.

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