Indexed bond

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.
References in periodicals archive ?
In Hot Tip: Nominal Exchange rates and Inflation Indexed Bond Yields (NBER Working Paper No.
Second, we assume the government can issue an indexed bond that promises a next-period payment that is a function of next-period income.
The paper is divided as follows: in Section 2, we explain the indexed bond market in Brazil, describing the methodology for pricing these securities.
An increase in the spread between the nonindexed bond and the indexed bond indicates an increased expectation of more inflation and vice versa.
New South Wales Treasury Corp, the funding arm of Australia's New South Wales State government, has said that it has appointed Merrill Lynch (NYSE: MER) (OOTC: MERIZ), a part of Bank of America Corporation (NYSE: BAC), to its capital indexed bond dealer panel.
"The traditional approaches of fixed income or indexed bond oriented strategies have limitations which we do not want to accept," it said.
However, it did not immediately arrest the decline in the exchange rate, and medium-term inflation expectations (as measured by the differential between non-indexed and indexed bond yields) have edged up to over 4%, outside the Bank's inflation tolerance band.
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.
American Century Inflation Adjusted Treasury (ACTIX), GMO Inflation Indexed Bond (GMIIX), and 59 Wall Street Inflation-Indexed Securities (FNISX).
Treasury has committed to developing the indexed bond market.
Thus, an indexed bond purchased at time t pays one unit of the endowment good with certainty at time t + 1.