Inflation protection

Inflation protection refers to a feature of certain corporate bonds that adjusts the bond's interest payments or principal value in response to changes in the inflation rate. Bonds with inflation protection typically have their coupon payments or principal amounts linked to an inflation index, such as the Consumer Price Index (CPI). 

This adjustment helps to preserve the purchasing power of the bondholder's investment in times of rising inflation. Bonds with inflation protection provide a hedge against the erosion of real returns caused by inflation.

By adjusting the bond's payments or principal based on changes in inflation, these bonds help maintain the purchasing power of the investor's funds. This can be particularly valuable during periods of high inflation when traditional fixed-income investments may see their real returns diminished.

Coupon uplift

Coupon uplift refers to a feature of certain corporate bonds where the coupon rate is adjusted periodically based on changes in a specified benchmark, such as the inflation rate or a reference interest rate. The coupon uplift mechanism allows the bond's interest payments to increase or decrease in response to changes in the benchmark, providing investors with a potential hedge against inflation or interest rate fluctuations. This adjustment ensures that the bond's coupon payments remain competitive and reflective of prevailing market conditions.

Principal uplift

Principal uplift, on the other hand, involves adjustments to the principal value of a bond rather than its coupon payments. Bonds with principal uplift provisions have their face value or redemption amount adjusted periodically based on changes in a specified benchmark, such as inflation or a reference index. The principal uplift feature helps protect the bondholder's investment against the erosion of purchasing power caused by inflation, ensuring that the bond's value keeps pace with changes in the economy.

Non-protected

While non-protected bonds do not offer the same inflation protection as bonds with coupon uplift or principal uplift features, they may still appeal to investors seeking stable and predictable income streams. These bonds typically offer higher yields compared to inflation-protected bonds, reflecting the absence of inflation-adjustment mechanisms.