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Interest-Indexed Bond

An index linked bond (historically issued in Australia in the 1980s) that pays a fixed real coupon, with the fixed principal being indexed to every indexation period over the lifespan of the bond. However, repayment of the principal at maturity is not indexed. This involves linking the cash flows (the so-called inflation adjustment) from the bond to an inflation index such as consumer price index (CPI). The cash flows will be paid out on a cash basis (i.e., this involves no accrual on the principal).


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