The spread (difference)between the yield on conventional bonds and the yield on indexed bonds with the same maturities is an indication of the expected inflation rate.

Question

Quizplus · Accepted Answer

This statement is true. The difference between the yield on conventional bonds and indexed bonds of the same maturity reflects the market's expectation of inflation. This is because indexed bonds provide a return that adjusts for inflation, while conventional bonds do not. Therefore, the spread between the two can be used to estimate the expected rate of inflation.

The Spread (Difference)between the Yield on Conventional Bonds and the Yield