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 type of bond provides protection against inflation, as the interest payments will increase along with the CPI.For example, if you purchase a $100 index-linked bond with an annual coupon rate of 5%, and the CPI increases by 2% over the course of one year, your interest payment for that year would be $5.10 ($5 + 0.05 x 2%).Index-linked bonds are often issued by governments as a way to hedge against inflationary pressures. However, these bonds can also be issued by private companies. In either case, they typically have maturities of five years or more. If you're looking for an investment that will provide some protection against inflation, an index-linked bond may be worth considering.
