Variable Principal Bond

From Open Risk Manual


Variable Principal Bond. Bond whose principal adjusts over time with changes in an index such as inflation or GDP

The principal on variable principal bonds adjusts line with an index such as inflation or GDP. For example, for a bond linked to the CPI, if Inflation rises two percent the principal increases by 2 percent. The coupon rate is typically fixed. The best-known example is TIPS or Treasury Inflation Protected Bonds, which are linked to the CPI. TIPs offer a real or inflation adjusted rate of return.


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