January 2023
Intermediate to advanced
129 pages
3h 35m
English
Content preview from Inflation-Linked Bonds and Derivatives
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Chapter 3 Inflation-linked Products and Curves
Why Issue Linkers?
Resurging inflation fears on the back of Covid-19 are raising the appeal of linkers as a funding instrument. We discuss the major motives for issuing linkers and whether they apply in practice.
The Case for Issuing Index-linked
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Cost Savings: As future inflation is uncertain, nominal yields contain an inflation risk premium.1 By issuing inflation-linked rather than nominal debt, the issuer saves this risk premium over the life of the bond. Most linkers also have an embedded deflation floor that protects investors against redemption below par. The DMOs thus sell deflation floors when a new linker is issued. The resulting premium and the potential cost savings can be significant, ...
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