Real Rate Bond

S

storlab

New member
Joined
Jun 18, 2026
Messages
0
Reaction score
0
The term “Real Rate Bonds” is confusing to me.
From CFAI Reading 14 Secion 3 Pension Liabilities Decomposed.
“For example, if the benefit payments increase with inflation then the investment benchmark would have a real rate bond component, and accordingly, the applicable discount rate should reflect the real rate bond risk premium used by the market to discount inflation linked cash flows.”

Nominal Rates = Real Retes +Inflation

So why do real rate bonds include inflation when “real rates” are exclusive of inflation?

I just don’t get it, what am I missing with these two phrases?

Thanks in advance
 
well just rearrange your equation,
nominal rate bond - inflation = real rate bond (i.e. TIPS)
 
It is confusing to me as well. I’ve never seen inflation adjustable bonds like TIPs referred to as real rate bonds outside the CFA. It’s an interesting choice of words.
 
onlysimon wrote:
well just rearrange your equation,
nominal rate bond - inflation = real rate bond (i.e. TIPS)
Click to expand...
I think that equation implies an increase in inflation would decrease the yield of a TIPs when in fact the opposite happens.
 
according to the books, TIPS are only sensitive to inflation uncertainty.
so probably
nominal rate bond - inflation = CONST + inflation uncertainty.
how does that work for you?
 
You must log in or register to reply here.
Back
Top