"In the UK, the linker gilt of 2016 has outperformed the conventional gilt by 45 to 50 basis points in yield terms since the start of this year," he explained.
Lord says geo-political risks affecting the oil price are only partly to blame, and that quantitative easing and other forms of money creation are impacting inflation more heavily.
"In Europe, at the end of 2011 the interbank market was completely dysfunctional and we were entering a deflationary spiral. But the long-term repurchase operations (LTROs) have added somewhere in the region of €1trn to banks over the last few months, the interbank market has been showing signs of being slightly less dysfunctional, and the risks of deflation feel for the moment substantially reduced," he explained.
"In the UK, the mechanism of quantitative easing boosted the prices of conventional gilts more than index linked gilts, as the Bank of England did not purchase linkers directly. This artificially suppressed the relationship between the conventional gilt and the linker at exactly the moment when money creation ought, in my opinion, to have seen higher inflation risk premia priced in."
Lord runs the £317.1m M&G High Interest fund, which has an FE Crown Rating of one. While the fund lags its peers in the IMA Sterling Corporate Bond sector, it is far less volatile.
Performance of fund vs sector over 3-yrs
Source: FE Analytics
Lord thinks there are two possible reasons for the strong performance of index linked gilts: due to worries that improved economic data means the end of QE is closer than the beginning, so the artificial source of demand for gilts is not going to be in the market for much longer; or because the markets have decided that target inflation or higher is likely.
Only the US market is pricing in inflation to be above-target for the next five years, which the manager says is the correct side for linkers to be valued at.
"The three central banks all have a clear and visible inflationary bias. They would correctly rather have inflation than deflation. But now they are showing a propensity to favour above-target inflation over below-target inflation," he explained.
"This is tantamount to a change in the inflation targets. And this must, in my opinion, see higher inflation risk premia."