Bonds & rates
Inflation-linked bonds
Also called TIPS, Index-linked gilts or Linkers
Government bonds whose principal and coupons rise with an official inflation index.
How it works
They protect purchasing power directly: if inflation is higher than expected, the payments increase. Their quoted yield is a real yield, already net of inflation.
The break-even inflation rate — the gap between a conventional bond’s yield and a linker’s of the same maturity — is a market-implied inflation forecast.
Where it misleads people
Inflation-linked bonds still have duration, so they lose value when real rates rise. They protect against inflation, not against rate moves, and 2022 demonstrated both at once.
Related terms
- InflationThe rate at which prices rise, which means the rate at which each pound or dollar buys less.
- Real returnReturn after subtracting inflation — the only measure of whether you got richer.
- DurationHow much a bond’s price moves when interest rates change, expressed in years.
- Break-even inflationThe inflation rate at which a conventional bond and an inflation-linked bond would perform identically.
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Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.