Listen to a Business English Dialogue About Inflation indexed securities
Audrey: Hi Kennedy, do you know what inflation-indexed securities are?
Kennedy: Yes, I do. Inflation-indexed securities are bonds or other financial instruments whose principal and interest payments are adjusted for inflation.
Audrey: That’s right. How do inflation-indexed securities protect investors from inflation?
Kennedy: Inflation-indexed securities protect investors from inflation by adjusting their value based on changes in the Consumer Price Index (CPI) or another inflation index, ensuring that the purchasing power of their investment is maintained.
Audrey: I see. Are there any drawbacks to investing in inflation-indexed securities?
Kennedy: One drawback is that the returns on inflation-indexed securities may be lower than traditional bonds during periods of low inflation, as the inflation adjustment may be minimal.
Audrey: Got it. How do investors assess the performance of inflation-indexed securities?
Kennedy: Investors typically monitor the real yield or real return of inflation-indexed securities, which accounts for both the nominal yield and the inflation adjustment.
Audrey: Thanks for explaining, Kennedy. Inflation-indexed securities seem like a valuable tool for investors to hedge against inflation.
Kennedy: You’re welcome, Audrey. They can be a useful component of a diversified investment portfolio, especially for investors concerned about preserving their purchasing power over time.