Why Governments Issue Inflation-Indexed Bonds

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Why Governments Issue Inflation-Indexed Bonds

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In this episode of Government Spending with Fexingo, Lucas and Luna explore why many governments issue inflation-indexed bonds, like Treasury Inflation-Protected Securities (TIPS) in the US. They start with a concrete case: the UK's index-linked gilts, first issued in 1981 when inflation was running above 10 percent. Lucas explains the mechanics — how the principal adjusts with the Consumer Price Index, ensuring investors get a real return regardless of inflation. They compare the cost to the government: in a low-inflation environment, indexed bonds can be cheaper than nominal debt, but during inflation shocks, they become expensive. Luna brings data on the global market for indexed bonds, now over $3 trillion, with France, Japan, and Canada as major issuers. They discuss why some countries, like Germany and Australia, issue far fewer indexed bonds, debating the trade-offs between investor demand and fiscal risk. The episode concludes with a forward-looking angle: as inflation expectations remain elevated in 2026, indexed bonds are gaining renewed attention from both treasuries and pension funds. #InflationIndexedBonds #TIPS #GovernmentBonds #IndexLinkedGilts #UKGilts #Inflation #RealReturn #ConsumerPriceIndex #FiscalPolicy #PublicDebt #CentralBanks #InvestorDemand #PensionFunds #Economics #FexingoBusiness #BusinessPodcast #GovernmentSpending #FiscalRisk Keep every episode free: buymeacoffee.com/fexingo

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