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Inflation Linked Bonds, Floater

Inflation Linked Bonds, Floater

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Inflation Linked Bonds (also known as linkers) are bonds whose principal are indexed to inflation, cutting out inflation risk.

The market primarily consists of sovereign debt, with privately issued Inflation Linked Bonds constituting a small portion of the market.

The UK was the first country to issue Inflation Linked Bonds (gilts) in 1981. Then the US followed in 1997 (TIPS), and finally the Eurozone in 1998.

The nominal of these bonds is indexed on inflation, which means that both the value of the bonds and the coupons of the bonds are protected against inflation.

Inflation Linked Bonds pay a coupon that is equivalent to the sum of the increase in an inflation index and the real coupon rate.
A rise in coupon payments is a result of an increase in inflation expectations, real rates, or both.

Inflation-linked bonds issued by the governments of Denmark, France, Spain, Germany and Italy are tradable on Eurex Bonds.

Floating Rate Notes or Floaters are debt instruments with a variable coupon.

The coupon of a Floater is adjusted periodically to a base or a benchmark such as the EURIBOR or LIBOR.  Sometimes it also includes a spread (or quoted margin), which remains constant for the whole contractual life of the bond.

The coupon is calculated by taking the reference rate on the fixing day and adding the spread.

Currently there are only Italian Government Floating Rate Notes set up for trading on Eurex Bonds.