Canada's inflation-linked Government bonds are reportedly showing a dip since April concerning the investors if they are overpaying for inflation protection.

According to Bank of America Merrill Lynch index, the real return bonds, which pay interest on principal that's tied to the consumer price index, have lost 2.5% since January. That's the biggest drop since a 3.1% decline in April.

Meanwhile, The Bank of Canada announced yesterday that it will auction C$400 million ($380 million) of the securities on Feb. 24.

"I would not be buying Canada", said Chris Case, who manages C$6 billion in fixed-income assets at Aviva Investors Canada Inc. in Toronto. "They're historically expensive", meaning the yields between the inflation-linked bonds and benchmark government debt are wide, he said.

Canadian real return bonds have lost 1.15% investors this year, compared with a gain of 1.3% over the same period last year.

Mohammed Ahmed, an interest-rate strategist at Canadian Imperial Bank of Commerce in Toronto said that there's a great deal of uncertainty at the moment.

"Investors are demanding a greater risk premium for real-return bonds. If you are not sure whether inflation is going to be negative 2%or positive 4%, then you are more willing to pay up for inflation protection", he added.