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About: GDP-linked bond

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In finance, a GDP-linked bond is a debt security or derivative security in which the authorized issuer (a country) promises to pay a return, in addition to amortization, that varies with the behavior of Gross Domestic Product (GDP). This type of security can be thought as a “stock on a country” in the sense that it has “equity-like” features. It pays more/less when the performance of the country is better/worse than expected. Nevertheless, it is substantially different from a stock because there are no ownership-rights over the country.

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  • In finance, a GDP-linked bond is a debt security or derivative security in which the authorized issuer (a country) promises to pay a return, in addition to amortization, that varies with the behavior of Gross Domestic Product (GDP). This type of security can be thought as a “stock on a country” in the sense that it has “equity-like” features. It pays more/less when the performance of the country is better/worse than expected. Nevertheless, it is substantially different from a stock because there are no ownership-rights over the country. GDP-linked bonds are a form of floating-rate bond with a coupon that is associated with the growth rate of a country, just as other floating-rate bonds are linked to interest rates, such as LIBOR or federal funds rate, or inflation rates, which is the case of inflation-indexed bonds. These securities can be issued to reference real GDP, nominal GDP or aspects of both. In some cases, however, these securities may not have any principal claim and the notional is only used as a basis for calculating the investor's share of payments. The term GDP-linked bond is often used interchangeably with the terms GDP-indexed bond, GDP-linked security, and GDP-indexed security in the literature. Sometimes the term warrant is used as well. This is likely because it is a relatively new asset class in which there are few real examples—the few of which were created from restructurings rather than primary issuance. There is also a variety of different ways that these instruments can be structured. For example, they can take the form of equity-like securities where payments are solely contingent on GDP growth or another extreme where they can resemble vanilla bonds with adjustments based upon GDP performance. The country will designate the classification in the instrument's indenture or prospectus. (en)
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  • In finance, a GDP-linked bond is a debt security or derivative security in which the authorized issuer (a country) promises to pay a return, in addition to amortization, that varies with the behavior of Gross Domestic Product (GDP). This type of security can be thought as a “stock on a country” in the sense that it has “equity-like” features. It pays more/less when the performance of the country is better/worse than expected. Nevertheless, it is substantially different from a stock because there are no ownership-rights over the country. (en)
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  • GDP-linked bond (en)
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