BANKING AFFAIRS

Detailed explanation-1: -Inflation bonds decoded A Reserve Bank of India (RBI) research paper from 2013 states that, “In developed debt markets, IIBs issued by the government are a popular debt instrument. These governments issue these bonds with an aim to: (a) Provide a new instrument to investors to hedge against inflation risk.

Detailed explanation-2: -Most inflation products out there are not inflation-protected bond funds but real yield funds. With 19 years of duration, the biggest driver is what happens to real yield, not inflation. ‘ Inflation-linked bonds typically link their coupon payment and/or principal repayment to an inflation index.

Detailed explanation-3: -The consumer price index (CPI) reflects the inflation people at large face and therefore, globally CPI or Retail Price Index (RPI) is used for inflation target by the Central Banks as well as for providing inflation protection in IIBs.

Detailed explanation-4: -2022. For investors, “real returns” are how much you earn from an investment after taking inflation into account. Inflation-indexed bonds-also called inflation-linked bonds-offer one way to mitigate rising prices, since the returns of these fixed-income securities are adjusted to account for inflation.