What are inflation-linked bonds?

Inflation-linked bonds are like a special piggy bank that grows when prices go up.

Imagine you have a jar where you save your allowance every week. Now, suppose the price of candy goes up, meaning you need more money to buy the same amount of candy. A regular bond is like a jar that stays the same size no matter what happens. But an inflation-linked bond is like a jar that gets bigger when prices go up, so your savings can still buy as much candy as before.

When you buy an inflation-linked bond, you're lending money to someone (like a government) for a certain amount of time. In return, they promise to pay you back with extra money if inflation, the rate at which prices go up, increases. This means your returns grow along with the cost of living.

Think of it like this: If you buy a candy bar for $1 today and it becomes $1.25 next year because of inflation, an inflation-linked bond would give you more money back so you can still afford that candy bar, or even get some extra coins to buy another one!