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20 Ιουλ 2023 · Learn how to calculate the real yield of an inflation-adjusted bond, such as U.S. Treasury inflation-protected securities (TIPS).
Inflation indexed bonds, also called inflation linked bonds or real return bonds, are bonds where the principal is indexed to inflation or deflation on a daily basis in terms of a reference index, such as Consumer Price Index (CPI).
27 Ιαν 2018 · Example (simplified!) indexation values include the following. At issuance, the indexation factor is the CPI (December 2018) divided by CPI (December 2018) which always equals 1. This means that the nominal price for the bond on the day of issuance (at auction) would equal the real price.
The formula is a simple linear interpolation, with the slope equal to the monthly inflation of two previous months. Using CPIs t-3 and t-2 ensures that a calculation is possible on any trading
30 Ιαν 2018 · This highly variable inflation compensation in the short term makes index-linked bonds an extremely unreliable money market instrument, and explains why there is no appetite to issue...
Inflation-linked bonds (ILBs) or linkers are fixed income securities whose principal and coupons are linked to inflation2 through a price index (Krämer, 2017). They are designed to eliminate the risk of unexpected inflation or to hedge against long-run inflation risk to the holders of the bonds.
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.
