Governments from the U.S. to Italy are boosting sales of inflation-linked bonds, wagering consumer prices will remain in check even after central banks inundated the world with cheap cash.

Thirty-five nations issued $1 trillion of the securities in the past three years, the most on record, according to data compiled by Bloomberg. The amount of government debt in developed countries tied to consumer prices is now equal to 7.9 percent of the fixed-rate sovereign bond market, the most since 2008, index data compiled by Bank of America Merrill Lynch show.

While cost-of-living increases in the industrialized world have never been smaller during an expansion, demand for the notes shows investors aren’t ready to declare that inflation is dead yet after central banks from the U.S. to Japan printed record amounts of money to kick-start their economies. In emerging markets, a currency rout roiling nations from South Africa to Turkey is already igniting inflation and threatening to add billions of dollars to government debt costs. 

“A number of countries that issued index-linked bonds have been through a recession in the past few years so naturally they think inflation will remain low for a long time,” Salman Ahmed, the global strategist at Lombard Odier Investment Managers, which oversees $46 billion, said in a telephone interview from London. “But some investors seem to have the opposite view. If inflation surges more than borrowers envisage, they could become an expensive form of funding.”

Known as linkers, the bonds allow investors keep pace with inflation because the value of the securities increases as consumer prices rise. When living expenses remain low, issuers can reduce their upfront borrowing costs because linkers pay less in interest than fixed-rate securities.

In the U.S., $15 billion of 10-year Treasury Inflation Protected Securities, known as TIPS, were sold at a yield of 0.661 percent on Jan. 23. Similar-maturity fixed-rate Treasuries yielded 2.78 percent on the same day.

Yields were 0.51 percent on the TIPS and the 2.68 percent on the nominal notes Monday as of 1:00 p.m. in New York.

Demand for linkers has increased as central banks globally dropped interest rates to record lows following the financial crisis and the Federal Reserve, the Bank of Japan and the Bank of England flooded the world with money by buying bonds.

Since 2007, central bank assets around the world have almost doubled to $20.5 trillion under asset-purchase programs designed to boost growth and prices, according to a June report from the Bank for International Settlements.

Sales of linkers worldwide have exceeded $300 billion for three straight years, the first time that’s happened on record, data compiled by Bloomberg show.

Last year’s $315 billion in issuance helped increase the market for inflation-linked debt since the end of 2010 by almost 40 percent to about $2.3 trillion, the data show.

The U.S., the world’s largest debtor nation, issued a record $155 billion last year. Italy, the second-largest seller of linkers in dollar terms in 2013, offered 46 billion euros ($63 billion), more than double the amount in 2008. (Bloomberg)