Index-Linked Bond

An index-linked bond is a bond in which payment of interest income on the principal is related to a specific price index, usually the Consumer Price Index (CPI). This feature provides protection to investors by shielding them from changes in the underlying index. The bond’s cash flows are adjusted to ensure that the holder of the bond receives a known real rate of return. An index-linked bond is also known as a real return bond in Canada, Treasury Inflation-Protected Securities (TIPS) in the U.S., and a linker in the U.K.