real yield security(redirected from Real-Yield Securities)
Real Yield Security
A debt security that protects the bondholder from inflation. Most debt securities pay a fixed coupon rate periodically and mature at par. While this carries low risk, it exposes investors to the possibility that the inflation rate will outpace the interest rate represented on the coupon. In order to protect against this, a real yield security automatically increases its principal and/or coupon rate according to the inflation rate as tracked by the Consumer Price Index or some other inflation-tracking index. Thus, the return on a real yield security keeps pace with inflation. Because real yield securities are so safe, they usually offer a very low rate of return. See also: TIPS.
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real yield security
A debt security on which the coupon rate is periodically reset to a level that reflects changes in the consumer price index plus a real yield spread. A real yield security transfers the risk of unexpected inflation from the creditor to the borrower.
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.