Coupon link

A coupon link is a feature that ties the interest payments (coupon payments) of a bond to a specific variable or index. This linkage can vary based on different factors such as commodity prices, credit ratings, currency exchange rates, equity performance, inflation rates, interest rates, or sustainability targets. The coupon link determines how the interest payments on the bond will be calculated and adjusted over time based on the performance of the chosen variable or index.

Issuers can enhance fixed, variable, and zero-coupon bond structures by incorporating a coupon link, offering investors opportunities tied to various market factors. These linked bonds provide the flexibility to adapt to changes in specified variables or indexes, introducing a spectrum of risk and return potential across all types of bonds.

Commodity linked

Commodity-linked bonds have coupon payments tied to the performance of specific commodities (such as oil, gold, or agricultural products).

These bonds provide exposure to commodity price movements. If commodity prices rise, the coupon payments increase, benefiting investors.

Credit linked

Credit-linked bonds adjust coupon payments based on the creditworthiness of the issuer. If the issuer's credit quality improves, the coupon may rise.

Investors gain from potential higher yields if the issuer's credit risk decreases over time.

Credit rating sensitive

These bonds' coupons change in response to variations in the issuer's credit rating. A downgrade may lead to reduced coupon payments.

Investors can benefit from higher yields if the issuer's credit rating improves.

Currency linked

Currency-linked bonds have coupons linked to foreign exchange rates. Payments may vary based on currency fluctuations.

These bonds allow investors to hedge against currency risk or speculate on exchange rate movements.

Customized index linked

Customized index-linked bonds tie coupon payments to a specific custom index (not necessarily a widely recognized market index).

Investors can tailor exposure to specific sectors or themes using these bonds.

Equity linked

Equity-linked bonds adjust coupons based on the performance of a specific stock or equity index.

These bonds offer potential upside if the linked equity performs well.

Index linked

Index-linked bonds have coupons linked to a widely recognized market index (e.g., S&P 500, FTSE 100).

Investors gain exposure to broad market movements through these bonds.

Inflation linked

Inflation-linked bonds adjust coupons in response to changes in inflation rates. Payments rise with inflation.

These bonds protect against purchasing power erosion during inflationary periods.

Interest rate linked

Interest rate-linked bonds have coupons tied to prevailing interest rates (e.g., LIBOR, government bond yields).

Investors benefit from potential higher yields if interest rates rise.

Sustainability linked

Sustainability-linked bonds adjust coupons based on the issuer's achievement of predefined sustainability targets.

These bonds align with environmental, social, and governance (ESG) goals, appealing to socially conscious investors.