Friday 24 May 2013

Inflation-linked bonds

  • A bond that guarantees a return higher than the rate of inflation if it is held to maturity. 
  • Inflation-indexed bonds pay a periodic coupon that is equal to the product of the inflation index and the nominal coupon rate.
  • The relationship between coupon payments, break-even inflation and real interest rates is given by the Fisher equation.
  • A rise in coupon payments is a result of an increase in inflation expectations, real rates, or both. 
Why in News:
  • Finance Minister P. Chidambaram in the Union budget for 2013-14, the government, in consultation with the Reserve Bank of India (RBI), decided to launch Inflation Indexed Bonds (IIBs) to wean away investors from the yellow metal (Gold) to paper-based savings instruments.

  • To read more about current affairs for the preparation of MPSC and UPSC exam please visit:www.mpscmatter.blogspot.in

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