Inflation-Indexed Bonds and Derivatives

Moorad Choudhry, Didier Joannas, Gino Landuyt, Richard Pereira and Rod Pienaar
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Moorad Choudhry: Europe Arad Bank plc
Didier Joannas: Thomson Reuters-Risk in North Asia
Gino Landuyt: Europe Arad Bank plc
Rod Pienaar: UBS AG prime services

Chapter 10 in Capital Market Instruments, 2010, pp 203-223 from Palgrave Macmillan

Abstract: Abstract In certain countries there is a market in bonds whose return, both coupon and final redemption payment, is linked to the consumer prices index. Investors’ experience with inflation-indexed bonds differs across countries, as they were introduced at different times, and as a result the exact design of index-linked bonds varies across the different markets. This of course makes the comparison of issues such as yield difficult, and has in the past acted as a hindrance to arbitrageurs seeking to exploit real yield differentials. In this chapter we highlight the basic concepts behind the structure of indexed bonds and show how these differ from those employed in other markets. Not all index-linked bonds link both coupon and maturity payments to a specified index; in some markets only the coupon payment is index-linked. Generally the most liquid market available will be the government bond market in index-linked instruments.

Keywords: Cash Flow; Inflation Rate; Consumer Price Index; Term Structure; Pension Fund (search for similar items in EconPapers)
Date: 2010
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-0-230-27938-4_10

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DOI: 10.1057/9780230279384_10

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