Corporations and Government Sponsored Enterprises issue inflation-linked structures as part of their overall funding program. The notes are typically issued with a “floating coupon” structure based on the change in the Consumer Price Index for All Urban Consumers (CPI) over the previous year. The inflation component is added to the fixed rate coupon and paid to the investor. At maturity, the initial investment is returned to the investor without any inflation adjustment. Therefore, a portion of each interest payment is meant to offset inflation, and the remainder is the real return.
