Indexed Bond

An Indexed Bond is that type of variable yield bond whose value changes according to the change of certain values or indices to which they are linked. It can be indexed to consumer prices index (CPI) or retail prices index (RPI), and in this case the reason is to protect investors against inflation, or it can be indexed to a market index or even to a correlation of multiple indices.

In addition, there can be two further types of Indexed Bonds, depending on whether the indexing is partial or total. In any case, the variable component of an Indexed Bond can involve the interest component, ie the periodic coupons, or the repayment of principal (or both). The adjustment of index-linked bonds aims to preserve the profitability of the investment in the face of changing financial market conditions, especially with regard to long-term bonds more subject to market changes.

For example, this issue by OTP Bank it is indexed to the Custom Oil to Gold 10% Index, a market index. Therefore, it will not be possible to calculate the coupon value in advance but this will be adapted from time to time to the performance of the index itself.