With an indexed bond, the interest and maturity value are adjusted by the rate of inflation over the life of the bond. Because the cash flow of an indexed bond is adjusted for inflation, the bond’s real value does not vary with inflation, protecting investors and issuers alike from inflation risk. Inflation indexed bonds would be a fundamental innovation in . financial markets, providing benefits to investors, the Treasury, and policymakers. Despite the potential benefits, the . Treasury has never issued indexed bonds. In fact, only a handful of industrialized countries, including the United Kingdom and Canada, have issued inflation indexed government bonds. This article discusses the benefits of inflation indexed Treasury bonds and points out.
