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What are capital indexed bonds?

The most common form of inflation linked bond is the capital indexed bond (CIB). Simply, CIBs are a bond whose base payment rises and falls with the Consumer Price Index (CPI).

CIBs have their capital, or the principal amount of the bond, indexed (usually quarterly) with the revised capital amount due for repayment at maturity. 

As indexation increases the principal value of the security over time, the amount due at maturity becomes greater so your capital is protected against the perils of inflation.

Key CIB strengths

  • Provides direct and reliable protection against inflation
  • Tradeable, just like other fixed income securities
  • Long terms to maturity offer long term inflation protection
  • Can add diversification to your portfolio as there are many well-known issuers

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