Handbook of Inflation Indexed Bonds
Early edited volume written as the US TIPS market opened.
Summary
The reference has not verified this book in detail; the summary states only what the title, author and subject establish.
Brynjolfsson, who managed inflation-linked portfolios at PIMCO, and Fabozzi edited a handbook on inflation-indexed bonds published shortly after the United States began issuing Treasury Inflation-Protected Securities in 1997. The reference has not verified the individual chapters.
What the subject establishes is the analytical territory. Inflation-indexed bonds pay a real coupon on a principal amount adjusted by a published price index, so the holder receives a return above realised inflation rather than a fixed nominal amount. The instruments therefore require different analytics from nominal bonds: real yield rather than nominal yield, real duration, the breakeven inflation rate implied by the difference between nominal and indexed yields of the same maturity, and the indexation lag between the reference period of the price index and the payment date.
The volume would cover the market structures then in existence, principally the United Kingdom index-linked gilts introduced in 1981, the Canadian, Australian and Swedish issues, and the new American securities, along with tax treatment, portfolio applications and liability matching for pension funds with inflation-linked obligations.
Subsequent developments are outside a 1999 volume. The market grew substantially, breakeven inflation rates became a standard measure of inflation expectations, indexed bonds behaved poorly during the 2008 liquidity crisis when real yields rose despite falling inflation expectations, and the 2021 to 2023 inflation episode provided the first serious test of the instruments in decades. Readers should verify the current market structure and analytics against current sources.
Key takeaways 6
- Inflation-indexed bonds pay a real coupon on principal adjusted by a published price index, so the holder receives a return above realised inflation.
- The difference between nominal and indexed yields of the same maturity implies a breakeven inflation rate, which is the market's expectation plus a risk premium.
- Real duration rather than nominal duration measures the price sensitivity of an indexed bond to changes in real yields.
- The indexation lag between the price index reference period and the payment date creates a small unhedged exposure.
- Pension funds and other holders of inflation-linked liabilities are the natural buyers, because these instruments match the liability directly.
- The United Kingdom introduced index-linked government bonds in 1981, well before the United States issued its first in 1997.
Who should read it
Practitioners working with inflation-linked instruments who need the analytical framework, verified against current market structure.
About Frank J. Fabozzi
Finance professor and longtime editor of the Journal of Portfolio Management, who writes and edits the standard fixed-income handbooks.
The handbooks define how bond, mortgage and preferred-stock markets are measured: cash-flow mechanics, duration and convexity, credit structures, and the pricing conventions desks actually use. Practitioners and CFA candidates work through these volumes to value and hedge the instruments the equity literature skips.
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Where it sits in the reference 2
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