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
"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
Thus, an indexed bond
purchased at time t pays one unit of the endowment good with certainty at time t + 1.