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What are Capital Indexed Bonds?

Capital Indexed Bonds (CIBs) are a type of bond whose capital value and interest repayments are adjusted periodically for movements in the Consumer Price Index (CPI). Interest is usually paid at a fixed rate on the adjusted face value. At maturity, investors receive the adjusted face value of the bond plus the final coupon based on the adjusted face value.

Advantages

  • Inflation Risk – Protection against inflation
  • Trade-able 
  • Income stream – Stream of regular coupon payments and the return of the principal on maturity.

Disadvantages

  • Inflation Risk – If inflation is negative, the value of the bond will be lower than what it was purchased for.