Inflation-Indexed Bonds (Part 1): TIPS, 1780 Massachusetts, and Seasonality
Book: Fixed Income Trading and Risk Management
Author: Alexander Düring
ISBN: 9781119756354
Previous: Curve Spreads | Next: Inflation-Indexed Bonds (Part 2)
Inflation linked bonds
Modeling Inflation: Pricing Inflation-Linked Products
Inflation eats your money. Slowly, usually, but sometimes fast. If you hold a regular bond, inflation erodes the value of every coupon and the principal repayment. Index-linked bonds solve this by tying payments to an inflation index like the Consumer Price Index (CPI) in the US or the Retail Price Index (RPI) in the UK. Chapter 71 of Wilmott’s book looks at how to model inflation and price these products. The answer turns out to be messier than you might hope.
Relative Value in Inflation: Breakeven Rates, Real Yields and Linkers
Chapter 8 brings us to inflation. And honestly, after all the credit stuff, this chapter feels like a breath of fresh air. It is a different beast. The inflation market is less developed than fixed income or credit. There is no inflation bond future. The options market is thin. Forward inflation trading was still finding its feet when this book was written.
Real Rates and Inflation-Linked Bonds: The EM Secret Weapon
Previous: EM Rates - Inflation and Central Banks
Chapter 7 is titled “Real Rates: Simply Superior.” That’s not a suggestion. It’s a thesis statement. The authors make a strong case that inflation-linked bonds in emerging markets deserve way more attention than they get. And honestly? The data backs them up.