Inflation-indexed bond
Also called: IIB, Inflation-linked bond · Topic: Financial Markets, Instruments, Insurance and Pensions · NCERT: Beyond NCERT
Meaning
An inflation-indexed bond (IIB) is a bond whose principal or coupon rises with inflation. This protects the investor's real return, meaning the return after allowing for price rises. With an ordinary bond, high inflation eats into the value of fixed payments. With an IIB, the payments grow in line with prices.
Example
India issued capital-indexed bonds in 1997. In 2013 it issued WPI-linked IIBs and CPI-linked IINSS-C. Demand from investors was weak, so these issues were stopped.
Don't confuse with
- Floating rate bond: its coupon is reset in line with a market interest rate, such as the 182-day T-bill yield. An IIB is adjusted for inflation itself.
- Sovereign Gold Bond: it is linked to the price of gold, not to an inflation index.
Related concepts
- Government securities
- Dated securities
- State Development Loans
- Primary dealer
- Oil bonds
- Sovereign Gold Bond
- Fully Accessible Route
- Global bond index inclusion