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Inflation-Indexed Bonds and Derivatives

In: Capital Market Instruments

Author

Listed:
  • Moorad Choudhry

    (Europe Arad Bank plc)

  • Didier Joannas

    (Thomson Reuters-Risk in North Asia)

  • Gino Landuyt

    (Europe Arad Bank plc)

  • Richard Pereira
  • Rod Pienaar

    (UBS AG prime services)

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.

Suggested Citation

  • Moorad Choudhry & Didier Joannas & Gino Landuyt & Richard Pereira & Rod Pienaar, 2010. "Inflation-Indexed Bonds and Derivatives," Palgrave Macmillan Books, in: Capital Market Instruments, edition 0, chapter 10, pages 203-223, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-27938-4_10
    DOI: 10.1057/9780230279384_10
    as

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