IntermediateStock Alerts + Tools0:45Fixed Income

The Principal Moves With Prices

Inflation-linked bonds adjust their principal with the price index, which protects purchasing power and creates a tax quirk.

0:45 · 6 scenes

This lesson is part of a Stock Alerts + Tools plan.

What the lesson covers

  1. 0:00An inflation-linked bond changes its principal as prices change.
  2. 0:05The mechanism. The principal is indexed, and the fixed coupon rate is applied to the new amount.
  3. 0:14Real versus nominal yield. The quoted yield is a real yield — a return above inflation, whatever it turns out to be.
  4. 0:23The breakeven. The gap between nominal and real yields is the inflation rate the market expects.
  5. 0:32The tax quirk. The principal adjustment is taxable in the year it happens, before you receive it.
  6. 0:40Compare against the breakeven, and hold them in shelter.
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Educational content only. MadStockAlerts provides market commentary, research, and educational content. It is not personalized investment advice, and nothing here is a recommendation to buy or sell any security. Trading and investing involve substantial risk, including loss of capital. See the Risk Disclosure and Customer Agreement.
Educational content only. MadStockAlerts provides market commentary, research, and educational content. It is not personalized investment advice, and nothing here is a recommendation to buy or sell any security. Trading and investing involve substantial risk, including loss of capital. See the Risk Disclosure and Customer Agreement.
The Principal Moves With Prices — MAD Academy Training Video · MadStockAlerts