The National Directory of Certified Public Accountants

Ask A CPA - Investments & Financial Planning

What Are Inflation Indexed US Treasuries ?

US Treasuries are bonds that their value is increased yearly to keep up with inflation. They are thus designed to cut out the inflation risk of an investment. Inflation-indexed bonds pay a periodic coupon that is equal to the product of the inflation index and the nominal coupon rate. The relationship between coupon payments, breakeven inflation and real interest rates is given by the Fisher equation. A rise in coupon payments is a result of an increase in inflation expectations, real rates, or both.

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