ll11

"These[TIPS] provide a fixed coupon (the real portion) plus an adjustment equal to the change in consumer prices. In principle, indexed bonds are the perfect risk-free asset because, unlike conventional bonds, they entail no risk from unexpected inflation. However, the yield on indexed bonds still changes over time, and in practice it varies with three economic factors.

Economic Observation, Effect on Real Bond Yields
--------------------------------------------------------------
Economic growth rising (falling), Rise (fall)
Inflation expectations rising (falling), Fall (rise)
Investor demand rising (falling), Fall (rise)"

The above is from Curriculum, Bok 3, page 95.
----------------------------------------------------------------------------

The interest payment increases if the inflation rises.
The nominal yields[coupon rates] are fixed.

Correct me if I'm wrong.



Edited 2 time(s). Last edit at Thursday, April 21, 2011 at 08:05AM by deriv108.