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Inflation-linked bonds


France was the first euro zone country to issue inflation-linked bonds with, in September 1998, the July 2009 3% OATi indexed to the French consumer price index excluding tobacco and, in October 2001, the OAT€i indexed to the euro zone’s harmonised price index excluding tobacco, the HICP. As a pioneer in euro-denominated indexed bonds, the AFT benefited from the experience already acquired in this field by the UK, Canada and the US, which began issuing such securities in 1981, 1993 and 1997 respectively. As might be expected, this example was followed by other sovereign issuers in the euro zone, namely Italy, Greece and Germany. 
Since 2007, all of the G7 sovereign issuers have been issuing inflation-linked bonds. When indexed OATs were launched, the French Bond Association (FBA) or CNO set up a working group to help harmonise the calculation methods applicable to this new class of bonds, drawing on existing bond markets and preparing for the introduction of new sovereign indexed issues. This wish of market participants to harmonise the calculation methods applicable to sovereign indexed bonds was once again strongly demonstrated when, in 2005, the DMO, the British debt agency, decided to change the method for calculating indexed Gilt coupons.
This note mainly covers the calculation definitions and standards applicable to inflation-linked sovereign issues structured as OATis and OAT€is, with indexing of the principal and coupons. Non sovereign issuers also issue on the indexed bond market, however, either with the same structure as those used by sovereign issuers, or with structures where only the bonds’ coupons are indexed. This structure will be explained in the paragraph looking at private issuers’ indexed issues. Inflation-linked bonds are also known as inflation-indexed bonds or I/L bonds and these terms are used interchangeably in this presentation.

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last update 02 June 2020