Reader Jordan posed a very good question in the comments of the previous post: " Does a real return bond have the same level of negative correlation to the stock market like short term bonds?" The answer in the research appears to be an emphatic No, they aren't like short term bonds in correlation to equities. The answer is even better!
Real return bonds are uncorrelated to both equities and other bonds. They are different enough to function as a separate asset class, which is exactly what the investor who uses asset allocation to manage his/her portfolio seeks.
ByloSelhi has an excellent page on RRBs; his links include a number of papers that have looked into this very topic. Bylo provides snippets of key conclusions to skim. For instance, the 2004 Kothari & Shanken paper says, "... We found that the real (inflation-adjusted) returns on indexed bonds are less volatile than the returns on otherwise similar conventional bonds. Moreover, the correlation with stock returns is much lower for the indexed bonds. An examination of asset allocation among stocks, indexed bonds, conventional Treasuries, and a riskless asset suggests that substantial weight should be given to indexed bonds in an efficient portfolio."
Here's an eyeball version of non-correlation in this chart from Google Finance showing the iShares real return fund XRB plotted against the TSX, the iShares short-term bond fund XSB and the whole market bond fund XBB. It's only short-term (3 years or so) but one can see the lines don't follow each other closely.
The recent decline in price reflects the recent increase in yield to around the 2.5% level - see CanadianFixedIncome.ca's current rates in the Real Return tab at the bottom of the page.
Buying an RRB with the intention of holding to maturity means that such price swings become irrelevant - the yield you get is that at which you bought - come hell (inflation) or high water (deflation).
With the yield difference between the regular Canada bond of 2025 maturity and the Canada 2026 RRB being only 3.79% - 2.64% = 1.2%, or the implied rate of inflation during that time, the RRB looks to be a good buy to me right now.