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← Inflation-Linked Bonds
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Question
Why are conventional nominal bonds vulnerable to inflation?
1
Nominal bond prices are directly linked to inflation indices by regulation
2
Coupon payments and the returned principal are fixed in nominal terms, so rising prices erode their real purchasing power over time
3
Inflation causes issuers to default more frequently on nominal bonds
4
Inflation triggers early repayment clauses that reduce total interest received
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