inflation-indexed security

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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

inflation-indexed security

A security with a rate of return linked to some specified measure of inflation. For example, Series I U.S. savings bonds pay holders a specified fixed rate adjusted for changes in the consumer price index.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.
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5-Year Treasury Inflation-Indexed Security, Constant Maturity.
The Fed's immiseration of people who live on interest earnings
However, a large share of TIPS activity occurs via "breakeven inflation" trades, whereby a particular inflation-indexed security is traded against a proportionate quantity of a particular nominal security.
The microstructure of the TIPS market
The first section broadly describes the inflation-indexed security programs in a number of developed countries and highlights some of their common features.
Developing a liquid market for inflation-indexed government securities: lessons from earlier experiences
On average it may be 3.5 percent, but there is an inflation risk associated with holding this bond that does not exist with an inflation-indexed security such as TIPS.
Expected inflation and TIPS
Equation (2) states that the break-even inflation rate, [??]--that is, the expected rate of inflation at which the two securities trade at the same price--can be approximated by the difference in the yields to maturity between a nominal and an inflation-indexed security. For securities of more than one year to maturity, matters are more complex but the same principle applies.
Monetary policy actions, macroeconomic data releases, and inflation expectations
[rho]: Real long-term default-free rate, measured by the yield of the on-the-run 10-year Treasury inflation-indexed security; daily; source: New York Times.
Monetary policy actions and the incentive to invest: the "value of waiting" may overwhelm low interest rates
An important real rate, which is thought to have a particular influence on investment spending, takes a common callable bond, the 30-year GNMA, and subtracts, as an inflation estimate, the yield difference between a 10-year Treasury bond and a 10-year Treasury inflation-indexed security. This option-adjusted rate (dubbed the "Berk rate" after the economist who developed the idea) has decreased lately, falling about 23 bp since mid-October.
Money and financial markets
Example 1: A $100,000 face value inflation-indexed security issued at par in January 2001 bears 5% interest and matures in four years.
Inflation-indexed debt instruments
This paper compares efficient portfolios containing an inflation-indexed security to portfolios without such a security.
Efficient investment portfolios in a real-value environment: implications for portfolio managers and bond yields
Because the payments automatically adjust to compensate for inflation, the yield on an inflation-indexed security reflects the real rate of return that would be realized over the maturity of the security.
The Treasury Securities Market: Overview and Recent Developments
A final consideration in valuing TIIS is that the securities offer deflation protection, in the sense that the cumulative adjustment to the principal amount of the inflation-indexed security at maturity cannot be negative.
Treasury inflation-indexed debt: a review of the U.S. experience

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