Issuers United Kingdom

The first step for estimating future streams is to know the expected inflation. To do this, the procedure needs the future trend of index in which the inflation expectation is built. The inflation expectation determined by countries is based on a different basket of products and services. For instance, inflation-linked bonds issued in the United Kingdom or UK index-linked gilts, are linked to the Retail Price Index (RPI) inflation-linked bonds issued in the United States or TIPS are linked to the Consumer Price Index (CPI). Table 6.1 summarizes the key global inflation indices used by the major issuers of inflation-linked bonds. 

As noted, the coupon rate is the interest rate the issuer agrees to pay each year. The coupon rate is used to determine the annual coupon payment which can be delivered to the bondholder once per year or in two or more equal installments. As noted, for bonds issued in European bond markets and the Eurobond markets, coupon payments are made annually. Conversely, in the United Kingdom, United States, and Japan, the usual practice is for the issuer to pay the coupon in two semiannual installments. An important exception is structured products (e.g., asset-backed securities) which often deliver cash flows more frequently (e.g., quarterly, monthly). 

---