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 ?
If the CPI inflation in September was 10%, the minimum coupon on an inflation-indexed bond will be 11.5%.
By contrast, a strategy of investing in a variable-maturity inflation-indexed bond would exhibit zero volatility at each horizon; that is, it would overlap with the horizontal axis on Figure 1.
The inflation-indexed bond, which carries a coupon of 4.375%, is part of a liability management transaction aimed at strengthening the sovereign's external debt profile.
While this may partly have reflected concern about an increased risk of deflation occurring, it is also likely to have been due partly to heightened uncertainty more generally and poor liquidity conditions in the inflation-indexed bond market.
An inflation-indexed bond that does not qualify for the coupon bond method (e.g., it is issued at a discount) is subject to the more complex discount bond method.
Using a simple econometric model to proxy for expectations about current and future short-term rates, the authors succeed in replicating some of the observed changes in long-term inflation-indexed bond yields.
(6) Interestingly, the State Electricity Commission of Victoria issued the first inflation-indexed bond in Australia in 1983, before the federal government began to issue such securities.
This regulatory symmetry works well when the rules are applied to either a traditional or an inflation-indexed bond subject to a discount (whether arising on original issue or in a subsequent trade).
Inflation-Indexed Bond Yield = Real Yield + Risk Premium
Treasury inflation-indexed bond, which provides protection against inflation by offering a constant real return for the life of the bond.
The real price of the one-period inflation-indexed bond can therefore be expressed as
ABSTRACT This paper explores the history of inflation-indexed bond markets in the United States and the United Kingdom.