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[Economy Lecture] L2/P2: Inflation Indexed Bonds (IIB), Nominal vs Real Interest rates
[Economy Lecture] L2/P2: Inflation Indexed Bonds (IIB), Nominal vs Real Interest rates
Published: 2015/02/07
Channel: Mrunal Patel
What is INFLATION INDEXED BOND? What does INFLATION INDEXED BOND mean?
What is INFLATION INDEXED BOND? What does INFLATION INDEXED BOND mean?
Published: 2017/03/09
Channel: The Audiopedia
Inflation-indexed bonds
Inflation-indexed bonds
Published: 2014/09/19
Channel: MoneyHop.com
FRM: Treasury inflation-protected securities (TIPS)
FRM: Treasury inflation-protected securities (TIPS)
Published: 2010/08/25
Channel: Bionic Turtle
Inflation Indexed National Saving Securities by RBI Explained
Inflation Indexed National Saving Securities by RBI Explained
Published: 2013/12/20
Channel: Prashant Thakur
Bonds, Interest Rates, and the Impact of Inflation
Bonds, Interest Rates, and the Impact of Inflation
Published: 2014/07/16
Channel: Mark Matos
Smart Money- Decoding Inflation Indexed Bonds
Smart Money- Decoding Inflation Indexed Bonds
Published: 2013/12/10
Channel: Bloomberg TV India
Inflation Protected Securities
Inflation Protected Securities
Published: 2015/10/30
Channel: yaacov kopeliovich
10 Inflation Indexed bonds
10 Inflation Indexed bonds
Published: 2014/05/15
Channel: KnowledgeVarsity
Should You Be Investing in Inflation Indexed Bonds Now
Should You Be Investing in Inflation Indexed Bonds Now
Published: 2015/04/17
Channel: PersonalFN
Dhirendra on inflation-indexed fund
Dhirendra on inflation-indexed fund
Published: 2013/12/03
Channel: ET NOW
Inflation-Indexed Bonds Investment Tips | Investor
Inflation-Indexed Bonds Investment Tips | Investor's Guide
Published: 2014/07/11
Channel: ET NOW
Smart Money- Subscribing To Inflation Indexed Bonds
Smart Money- Subscribing To Inflation Indexed Bonds
Published: 2014/03/18
Channel: Bloomberg TV India
Inflation Protection in Fixed Income: Inflation-Linked Bonds
Inflation Protection in Fixed Income: Inflation-Linked Bonds
Published: 2014/12/15
Channel: SPIndicesChannel
Inflation-indexed bond
Inflation-indexed bond
Published: 2014/10/31
Channel: Audiopedia
Understanding Inflation and Inflation-Linked Products by Brice Benaben
Understanding Inflation and Inflation-Linked Products by Brice Benaben
Published: 2014/11/07
Channel: Quants Hub
Inflation Indexed Bond -- armed to beat inflation, Harsh Roongta on ZEE Business
Inflation Indexed Bond -- armed to beat inflation, Harsh Roongta on ZEE Business
Published: 2013/05/16
Channel: Make Friends with Money
Introduction to Index linked Bonds
Introduction to Index linked Bonds
Published: 2016/02/29
Channel: BlueBookAcademy.com
Inflation is the bond investor
Inflation is the bond investor's biggest enemy
Published: 2014/09/19
Channel: MoneyHop.com
Dhirendra Shares His Views On Inflation Indexed Bonds
Dhirendra Shares His Views On Inflation Indexed Bonds
Published: 2013/06/05
Channel: ET NOW
iShares Global Inflation Linked Bond
iShares Global Inflation Linked Bond
Published: 2015/06/16
Channel: Why Invest In
What Is An Index Linked Gilts?
What Is An Index Linked Gilts?
Published: 2017/08/29
Channel: Burning Question
Inflation, Stocks, Bonds, And Commodities
Inflation, Stocks, Bonds, And Commodities
Published: 2016/05/07
Channel: CiovaccoCapital
TIPS (Inflation-Indexed Bonds): April 13th Study
TIPS (Inflation-Indexed Bonds): April 13th Study
Published: 2017/04/14
Channel: Torpedo Trading
Inflation Index Bond Annouced
Inflation Index Bond Annouced
Published: 2014/01/21
Channel: sidhant sibal
[Wikipedia] Inflation derivative
[Wikipedia] Inflation derivative
Published: 2017/03/14
Channel: WikiTubia
Decoding Inflation-indexed bonds
Decoding Inflation-indexed bonds
Published: 2013/12/09
Channel: ET NOW
Opportunities in Inflation-Linked Bonds
Opportunities in Inflation-Linked Bonds
Published: 2016/04/11
Channel: PIMCO
Understanding TIPS (Treasury Inflation Protected Securities)
Understanding TIPS (Treasury Inflation Protected Securities)
Published: 2009/01/21
Channel: thewaytobuildwealth
Economy Lecture L2 P2  Inflation Indexed Bonds IIB, Nominal vs Real Interest rates | Bhinder Badra |
Economy Lecture L2 P2 Inflation Indexed Bonds IIB, Nominal vs Real Interest rates | Bhinder Badra |
Published: 2016/07/23
Channel: Bhinder Singh
Will inflation-indexed bonds successfully drive away gold investors?
Will inflation-indexed bonds successfully drive away gold investors?
Published: 2013/04/16
Channel: NDTV
Marion Le Morhedec - Senior Inflation - Linked Bonds Portfolio Manager
Marion Le Morhedec - Senior Inflation - Linked Bonds Portfolio Manager
Published: 2010/02/19
Channel: AxaIMvideo
TIPS Update (Inflation-Protected Bonds)
TIPS Update (Inflation-Protected Bonds)
Published: 2017/06/09
Channel: Torpedo Trading
Index Linked Bonds and Inflation Derivatives - Dr. David Cox
Index Linked Bonds and Inflation Derivatives - Dr. David Cox
Published: 2012/10/11
Channel: London Financial Studies Ltd.
Nirav Panchmatia on CNBC- Inflation Index Bonds RBI
Nirav Panchmatia on CNBC- Inflation Index Bonds RBI
Published: 2014/02/17
Channel: Nirav Panchmatia
Tinkerbell, Lochness & Inflation linked Bonds
Tinkerbell, Lochness & Inflation linked Bonds
Published: 2017/05/01
Channel: MJ the Student Actuary
Bonds: Nominal vs Index linked
Bonds: Nominal vs Index linked
Published: 2017/10/11
Channel: Bloomsbury Wealth
Inflation Linked Bonds – the not-so-boring alternative | 7 July 2016
Inflation Linked Bonds – the not-so-boring alternative | 7 July 2016
Published: 2016/07/07
Channel: Futuregrowth Asset Management
Index Linked Bonds
Index Linked Bonds
Published: 2012/10/16
Channel: Christopher Hunt
Executive (CMSL) Capital Indexed Bonds
Executive (CMSL) Capital Indexed Bonds
Published: 2016/11/02
Channel: GOLS OnlineCoaching
Inflation Linked Funds
Inflation Linked Funds
Published: 2017/02/06
Channel: PensionCraft
Indexed Bonds - What is the definition and calculation? - Finance Dictionary
Indexed Bonds - What is the definition and calculation? - Finance Dictionary
Published: 2012/01/12
Channel: Subjectmoney
How the Futuregrowth Yield Enhanced Inflation-linked Bond Fund works - Product Tutorials
How the Futuregrowth Yield Enhanced Inflation-linked Bond Fund works - Product Tutorials
Published: 2016/06/15
Channel: Futuregrowth Asset Management
What is bond, Inflation, deflation, Assets in hindi
What is bond, Inflation, deflation, Assets in hindi
Published: 2017/05/18
Channel: Guru Yogi Classes
Fixed, floating or inflation linked?
Fixed, floating or inflation linked?
Published: 2013/07/09
Channel: FIIG Securities
Indian Govt
Indian Govt's Inflation Indexed Bond, Plastic Rupee and More...
Published: 2013/05/19
Channel: Madhusudan Raj
Ben Lord: M&G UK Inflation Linked Corporate Bond
Ben Lord: M&G UK Inflation Linked Corporate Bond
Published: 2013/08/30
Channel: Hargreaves Lansdown
Smart Money- Inflation Index Bonds Launched
Smart Money- Inflation Index Bonds Launched
Published: 2013/12/31
Channel: Bloomberg TV India
HSBC
HSBC's Morris Recommends Inflation-Linked Gilts, Dollar
Published: 2011/11/17
Channel: Bloomberg
Handbook of Inflation Indexed Bonds
Handbook of Inflation Indexed Bonds
Published: 2017/03/27
Channel: The Searchers
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WIKIPEDIA ARTICLE

From Wikipedia, the free encyclopedia
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Daily inflation-indexed bonds (also known as inflation-linked bonds or colloquially as linkers) are bonds where the principal is indexed to inflation or deflation on a daily basis in terms of the official Daily CPI or monetized daily indexed unit of account like the Unidad de Fomento in Chile and the Real Value unit of Colombia. They are thus designed to hedge the inflation risk of a bond.[1] The first known inflation-indexed bond was issued by the Massachusetts Bay Company in 1780.[2] The market has grown dramatically since the British government began issuing inflation-linked Gilts in 1981. As of 2008, government-issued inflation-linked bonds comprise over $1.5 trillion of the international debt market.[3] The inflation-linked market primarily consists of sovereign bonds, with privately issued inflation-linked bonds constituting a small portion of the market.

Structure[edit]

Daily inflation-indexed bonds pay a periodic coupon that is equal to the product of the daily inflation index and the nominal coupon rate. The relationship between coupon payments, breakeven daily inflation and real interest rates is given by the Fisher equation. A rise in coupon payments is a result of an increase in inflation expectations, real rates, or both.

For some bonds, such as the Series I Savings Bonds (U.S.), the interest rate is adjusted according to daily inflation.

For other bonds, such as in the case of TIPS, the underlying principal of the bond changes, which results in a higher interest payment when multiplied by the same rate. For example, if the annual coupon of the bond were 5% and the underlying principal of the bond were 100 units, the annual payment would be 5 units. If the inflation index increased by 10%, the principal of the bond would increase to 110 units. The coupon rate would remain at 5%, resulting in an interest payment of 110 x 5% = 5.5 units.

Real Yield[edit]

The real yield of any bond is the annualized growth rate, less the rate of inflation over the same period. This calculation is often difficult in principle in the case of a nominal bond, because the yields of such a bond are specified for future periods in nominal terms, while the inflation over the period is an unknown rate at the time of the calculation. However, in the case of inflation-indexed bonds such as TIPS, the bond yield is specified as a rate in excess of inflation, so the real yield can be easily calculated using a standard bond calculation formula.[4]

Global issuance[edit]

The most liquid instruments are Treasury Inflation-Protected Securities (TIPS), a type of US Treasury security, with about $500 billion in issuance. The other important inflation-linked markets are the UK Index-linked Gilts with over $300 billion outstanding and the French OATi/OAT€i market with about $200 billion outstanding. Germany, Canada, Greece, Australia, Italy, Japan, Sweden and Iceland also issue inflation-indexed bonds, as well as a number of Emerging Markets, most prominently Brazil.[5] [6]

Country Issue Issuer Inflation Index
United States Treasury Inflation-Protected Securities (TIPS)[7] US Treasury US Consumer Price Index
United States Series I Inflation-Indexed Savings Bonds (I-Bonds - domestic retail bonds)[8] US Treasury US Consumer Price Index
United Kingdom Index-linked Gilt UK Debt Management Office Retail Price Index (RPI)
United Kingdom Index-linked Savings Certificates (domestic retail bonds) National Savings and Investments Retail Price Index (RPI)
France OATi and OAT€i[9] Agence France Trésor France CPI ex-tobacco (OATi), EU HICP ex-tobacco (OAT€i)
Canada Real Return Bond (RRB)[10] Bank of Canada Canada All-Items CPI
Australia Capital Indexed Bonds (CAIN series) Department of the Treasury (Australia) Weighted Average of Eight Capital Cities: All-Groups Index
Germany iBund and iBobl[11] Bundesrepublik Deutschland Finanzagentur EU HICP ex Tobacco
Russian Federation Federal loan bonds (GKO-OFZ) with a nominal value indexed by the inflation rate Ministry of Finance (Russia) Russian Federation's CPI
Greece EU HICP ex Tobacco
Hong Kong iBond (domestic retail bonds) Hong Kong Government Composite Consumer Price Index
Italy BTP€i Department of the Treasury EU HICP ex Tobacco
India Inflation Indexed Bonds[12][13] Reserve Bank of India Wholesale Price IndexConsumer Price Index
Italy BTP Italia (domestic retail bonds) Department of the Treasury Italy CPI ex tobacco
Japan JGBi Ministry of Finance (Japan) Japan CPI (nationwide, ex-fresh-food)
Sweden Index-linked treasury bonds Swedish National Debt Office Swedish CPI
Brazil Notas do Tesouro Nacional - Série B / C Tesouro Nacional B: IPCA / C: IGP-M
Mexico Udibonos Banco de Mexico UDIs
Spain[14] Bonos indexados del Estado and Obligaciones indexadas del Estado[15] Tesoro Público EU HICP ex Tobacco

Inflation-indexed bond indices[edit]

Inflation-indexed bond indices include the family of Barclays Inflation Linked Bond Indices,[16] such as the Barclays Inflation Linked Euro Government Bond Indices, and the Lehman Brothers U.S. Treasury: U.S. TIPS index.[17]

See also[edit]

References[edit]

  1. ^ Unfortunately, income taxes bring some inflation risk back to such bonds. See tax on the inflation tax.
  2. ^ Shiller. "The Invention of Inflation-Indexed Bonds in Early America" (PDF). , "Both Principal and Interest to be paid in the then current Money of said STATE, in a greater or less SUM, according as Five Bushels of CORN, Sixty-eight Pounds and four-seventh Parts of a Pound of BEEF, Ten Pounds of SHEEPS WOOL, and Sixteen Pounds of SOLE LEATHER shall then cost, more or less than One Hundred and Thirty Pounds current money, at the then current Prices of said ARTICLES.
  3. ^ Barclays Capital Research A (2008-02-20). "Global Inflation-Linked Products: A User's Guide". 
  4. ^ Frank J. Fabozzi, CFA (17 February 2003). The Handbook of Financial Instruments. John Wiley & Sons. pp. 207–208. ISBN 978-0-471-44560-9. Retrieved 1 January 2013. 
  5. ^ "Real Return Bonds". Retrieved 2006-06-30. 
  6. ^ Swinkels, L. "Emerging Markets Inflation Linked Bonds". SSRN 1873967Freely accessible. 
  7. ^ "TIPS In Depth". Retrieved 2006-06-30. 
  8. ^ "Series I Savings Bonds". Retrieved 2008-04-09. 
  9. ^ "OAT€is AND BTAN€is". Retrieved 2006-06-30. 
  10. ^ "Government of Canada Market Debt Instruments". Retrieved 2009-10-26. 
  11. ^ "Finance Agency: Inflation-linked securities". Retrieved 2016-11-14. 
  12. ^ . Reserve Bank of India. Reserve Bank of India http://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=28671. Retrieved 15 November 2014.  Missing or empty |title= (help)
  13. ^ . NDTV Profit. 12 June 2014 http://profit.ndtv.com/news/bonds/article-rbi-to-launch-revamped-inflation-indexed-bonds-soon-496423. Retrieved 15 November 2014.  Missing or empty |title= (help)
  14. ^ Moore, Elaine (2014-05-22). "Spain dives into inflation-linked bonds". Financial Times. ISSN 0307-1766. Retrieved 2016-08-12. 
  15. ^ "Subastas | Tesoro Público - Yo invierto aquí". elijo.tesoro.es. Retrieved 2016-08-12. 
  16. ^ "Barclays Capital: Inflation Linked Bond Index".
  17. ^ "Lehman Brothers: Global Family of Indices - Daily Returns".

External links[edit]

Print[edit]

  • Deacon, Mark, Andrew Derry, and Dariush Mirfendereski; Inflation-Indexed Securities: Bonds, Swaps, and Other Derivatives (2nd edition, 2004) Wiley Finance. ISBN 0-470-86812-0.
  • Benaben, Brice, and Sebastien Goldenberg (ed.); Inflation Risks and Products (Dec. 2008) Riskbooks. ISBN 978-1-906348-07-6.
  • Canty, Paul and Markus Heider; "Inflation Markets: A Comprehensive and Cohesive Guide" (2012) Risk Books. ISBN 9781906348755.

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