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Indexed Bond

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Indexed bond
Bond whose payments are linked to an index, e.g., the consumer price index.

Inflation-Indexed Securities
A bond or other fixed-rate security with an interest rate that varies according to inflation. An inflation-indexed bond, for example, may pay a fixed coupon plus an additional coupon with the amount adjusted every so often according to some inflation indicator, such as the Consumer Price Index. If these securities are held to maturity, then the investor guarantees that the return will exceed the rate of inflation. Inflation-indexed securities exist to provide a low-risk investment vehicle in which the return is guaranteed not to fall below the rate of inflation. See also: I Bond.


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As one of many possible hypothetical examples, one might regard the protection provided by an indexed bond against unanticipated inflation to be of greater value during a boom than during a recession.
This is despite the Government's relatively successful US-dollar indexed bond offered last week.
In January, 1997 the United States issued its first inflation indexed bonds in two centuries.
 
 
 
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