RT Journal Article
SR Electronic
T1 Synthetic Real Return Bonds
JF The Journal of Structured Finance
FD Institutional Investor Journals
SP 59
OP 63
DO 10.3905/jsf.2013.19.2.059
VO 19
IS 2
A1 Jacques A. Schnabel
YR 2013
UL https://pm-research.com/content/19/2/59.abstract
AB This article proposes a new financial product—synthetic real return bonds. It demonstrates how a real return bond may be synthesized by developing an arbitrage relationship between such a bond and a portfolio composed of a nominal return bond, a set of inflation swaps, and a bank deposit and/or loan. Nominal return bonds issued by national governments may thus be transformed by a private-sector entity into real return bonds. Hence, the problems that render real return bonds problematic as investment and hedging vehicles, namely their scarcity and illiquidity, are ameliorated.TOPICS: Fixed income and structured finance, derivatives applications