Index Linked Bond

An index linked bond is one whose cash flows are linked to movements in a specific price index, with the aim of providing investors with a means to protect the real value of their savings. The bonds are usually indexed to a broad measure of prices, typically a domestic Consumer Price Index (CPI).

Index linked bonds include Canadian Real Return Bonds, US Treasury Inflation Indexed Securities (TIPS), OAT€i bonds and inflation GILTs.

The reference CPI for the first day of any calendar month is the CPI for the calendar month falling three months earlier. For example, the reference CPI for 1 June corresponds to the CPI for March. Since CPI is set at the first day of each month, the reference CPI for settlement or issue dates not falling on the first day of the months are linearly interpolated

For example, the reference CPI for 20 July, 1996 is calculated

The PV01, duration, and convexity for an index-linked bond are calculated

Index Linked Bond

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