RBS launches inflation-linked bond
Royal Bank of Scotland has issued an inflation-linked bond on the London Stock Exchange's Order Book for Retail Bonds (ORB).
The bond, which has a seven-year maturity, pays a coupon of 2% adjusted in line with the Retail Prices Index (RPI). It is available in denominations of £1,000.
Boon to savers
David Stuff, UK director of listed product sales at RBS, says the new bond will be a boon to savers hunting for real returns in a high inflation and low interest rate environment.
The UK Inflation Income Bond is the sixth bond to be issued by the bank on the ORB platform.
Pietro Poletto, head of fixed income at the LSE, says: "There is a growing demand from private investors for new bonds and inflation-linked products have proved popular this year."
He adds: "ORB continues to draw new bond issues to the market and is steadily creating a wide choice of products for retail investors."
The ORB was launched in February 2010 in response to strong private investor demand for retail-sized bonds. There are more than 150 bonds available on the ORB, typically tradable in denominations of £1,000 or less.
This article was written for our sister website Money Observer
Replaced as the official measure of inflation by the consumer prices index (CPI) in December 2003. Both the Retail Price Index and CPI are attempts to estimate inflation in the UK, but they come up with different values because there are slight differences in what goods and services they cover, and how they are calculated. Unlike the CPI, the RPI includes a measure of housing costs, such as mortgage interest payments, council tax, house depreciation and buildings insurance, so changes in the interest rates affect the RPI. If interest rates are cut, it will reduce mortgage interest payments, so the RPI will fall but not the CPI. The RPI is sometimes referred to as the “headline” rate of inflation and the CPI as the “underlying” rate.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).