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Inflation-Indexed Securities

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Inflation-indexed securities
Securities such as bonds or notes that guarantee a return higher than the rate of inflation if the security is held to maturity.

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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The Treasury tilted its issuance toward longer-term and inflation-indexed securities somewhat, and announced semiannual issuance of a twenty-year inflation-protected bond beginning in July and a five-year inflation-protected note beginning in October.
Treasury began issuing inflation-indexed securities in early 1997.
The other shows that the implied real return on Treasury inflation-indexed securities has fallen over the past few years even though projected budget deficits have increased.
 
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