What are inflation-linked bonds?

Can you explain what inflation-linked bonds are?

Sure! Inflation-linked bonds are fixed-income securities that provide protection against inflation. Their principal value increases with inflation, ensuring that the purchasing power of the investment is maintained.

How do they work in terms of interest payments?

The interest payments on inflation-linked bonds are typically adjusted based on the inflation rate. This means that as inflation rises, the interest payments also increase, providing a hedge against inflation.

What are the advantages of investing in these bonds?

The main advantages include protection against inflation, stable income, and lower risk compared to stocks. They can be a good choice for conservative investors.

Are there any risks associated with inflation-linked bonds?

Yes, some risks include interest rate risk, as their prices can fall if interest rates rise, and they may offer lower returns compared to other investments in a low-inflation environment.