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Inflation-indexed bonds: how do they work?

Author

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  • Jeffrey M. Wrase

Abstract

In January 1997, the United States Treasury, after years of debate, issued its first inflation-indexed bonds. These securities differ from conventional bonds in that principal and interest payments are linked to a price index. Thus, the purchasing power of an investor's savings is protected from inflation. This article provides a simple description of the Treasury's new offering and discusses why indexed bonds may be useful to investors, the Treasury, and policymakers

Suggested Citation

  • Jeffrey M. Wrase, 1997. "Inflation-indexed bonds: how do they work?," Business Review, Federal Reserve Bank of Philadelphia, issue Jul, pages 3-16.
    • Handle: RePEc:fip:fedpbr:y:1997:i:jul:p:3-16
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    File URL: https://www.philadelphiafed.org/-/media/frbp/assets/economy/articles/business-review/1997/july-august/brja97jw.pdf
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    Citations

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    Cited by:

    1. Maria Farrugia & Glenn Formosa & Joseph Julian Pace, 2018. "Inflation-linked Bonds: An Introduction," CBM Working Papers WP/05/2018, Central Bank of Malta.
    2. Thorsten Lehnert & Aleksandar Andonov & Florian Bardong, 2009. "TIPS, Inflation Expectations and the Financial Crisis," LSF Research Working Paper Series 09-09, Luxembourg School of Finance, University of Luxembourg.
    3. Lioui, Abraham & Poncet, Patrice, 2005. "General equilibrium pricing of CPI derivatives," Journal of Banking & Finance, Elsevier, vol. 29(5), pages 1265-1294, May.
    4. Schulz, Rainer, 2000. "Hedging the standard of living via cost of living index futures," SFB 373 Discussion Papers 2000,93, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
    5. Simón Sosvilla-Rivero & Emma García, "undated". "Forecasting the Dollar/Euro Exchange Rate: Can International Parities Help?," Working Papers 2003-15, FEDEA.
    6. Madureira, Leonardo, 2007. "The ex ante real rate and inflation premium under a habit consumption model," Journal of Empirical Finance, Elsevier, vol. 14(3), pages 355-382, June.
    7. Ricardo Selves & Marcin Stamirowski, 2011. "Including linkers in a sovereign bond portfolio: an HJM approach," BIS Papers chapters, in: Bank for International Settlements (ed.), Portfolio and risk management for central banks and sovereign wealth funds, volume 58, pages 111-137, Bank for International Settlements.
    8. Juan Angel Garcia & Adrian van Rixtel, 2007. "Inflation-linked bonds from a central bank perspective," Occasional Papers 0705, Banco de España.

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