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.
References in periodicals archive ?
The yield of an inflation indexed security usually consists of two components: a real yield and a liquidity risk premium to compensate investors for the risk of having to pay more (than in the case of nominal Treasuries) to liquidate the TIPS before its maturity.
We assume the existence of an inflation indexed security that offers a fixed, guaranteed return of 3.
The empirical evidence in the UK government debt market suggests that the first effect outweighs the second, causing the price risk of an inflation indexed security to be lower than that of a conventional one (Shen 1998).