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Inflation-Indexed Bonds and Derivatives

  • Moorad Choudhry
  • Didier Joannas
  • Richard Pereira
  • Rod Pienaar
Part of the Finance and Capital Markets Series book series (FCMS)

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 Pension Fund Real Interest Rate 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© Moorad Choudhry, Didier Joannas, Richard Pereira and Rod Pienaar 2005

Authors and Affiliations

  • Moorad Choudhry
    • 1
  • Didier Joannas
    • 2
  • Richard Pereira
    • 3
  • Rod Pienaar
    • 4
  1. 1.KBC Financial ProductsUK
  2. 2.Hong KongChina
  3. 3.Nomura plcUK
  4. 4.UBS AGUK

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