RBS launches inflation-linked bond

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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

Your Comments

I am confused. 2% is way below even the official inflation rates so how can this be described as  inflation linked?

I am still confused. As RPI is currently over 5% are you saying the bond will increase to say 105% of your original investment + Interest on the Bond will be paid @ 5% say as well.Surely this is "having your cake & eating it at the same time" ????  

When does the 2% coupon rate come into operation? 

Is it when RPI falls to below 2%? If so it is better described as a RPI bond guaranteed not to pay less than 2% ?? 


Billmuirca, the bond will pay a 2% coupon, plus RPI at the end of the term. As RPI changes each month (the last estimate was 5.4% in October), the capital value of the bond will be uprated, or adjusted, in line with this. The coupon value is set at 2% for the whole seven years of the bond, but the value of the investment will be uprated in line with inflation. Assuming RPI stays at 5.4%, an investment of £1,000 would be worth £1,054 after a year.

But, this RPI value will continue to fluctuate, (although many experts think core inflation is much lower, and inflation will drift gradually down next year, although that’s another issue entirely), which is why at the end of the seven years, the amount you receive back from your original capital will be determined by the changes in the RPI index.