Inflation-linked bonds

As a part of its government bond programme, Danmarks Nationalbank also issues inflation-linked bonds. That is, bonds where the principal is linked to the Danish consumer price index, CPI, meaning that coupon and principal repayment occur in real amounts.

In line with the issuance strategy, a new inflation-linked bond will be opened approximately every four years, enabling an effective shift of investors from off-the-run to on-the-run issues and allowing investors to move further along the real yield curve.

The target for the total outstanding amount in the central government’s inflation-linked bond programme is kr. 40-60 billion. The on-the-run inflation-linked bond is expected to be offered regularly at the ordinary auctions and at switch auctions in exchange for the central government’s existing, off-the-run inflation-linked bonds, aiding in the liquidity-building process of the on-the-run issue. 

What is an inflation-linked bond?

Over the life of an inflation-linked bond, its principal will vary with consumer prices. At maturity, the redemption amount is the inflation-indexed principal. However, Danish government inflation-linked bonds have a deflation floor, ensuring that investors always, as a minimum, get the full nominal principal back.

Expressed in per cent, the coupon rate on an inflation-linked bond remains fixed, but as the actual coupon payable is calculated on the basis of the inflation-adjusted principal, the amount will vary with consumer prices as well. Coupon payments, as opposed to the principal, do not have deflation- protection, and will therefore always be a percentage of the indexed principal.

When the central government issues inflation-linked bonds, future central government coupon costs in real terms are known already at the time of issuance. But, unlike central government nominal bonds, nominal payments will remain unknown until the bond matures. Break-even inflation is a key concept in assessing the central government’s expected costs of issuing inflation-linked bonds relative to nominal bonds. 

Break-even inflation

Break-even inflation is an expression of the future average realised inflation level at which the central government’s costs of issuing inflation-linked and nominal bonds are the same. In practice, break-even inflation is often calculated as the yield spread between nominal and inflation-linked bonds with the same maturity: 

Break-even inflation ≈ nominal yield - real yield

If the realised average inflation turns out to exceed the break-even inflation rate (observed at issuance), it would, viewed in isolation, have been cheaper for the central government to issue nominal bonds rather than inflation-linked bonds, and vice versa.

Danish inflation-linked bonds


Security name

Redemption date


Basis index


DGBi 0.10 per cent 2034

15 November 2034




DGBi 0.10 per cent 2030

15 November 2030




DGBi 0.10 per cent 2023

15 November 2023



Demand for Danish inflation-linked bonds

Inflation-linked bonds can, among other objectives, be used to preserve purchasing power and to inflation-hedge portfolios.

Danish inflation-linked bonds are held by a broad group of investors, the largest groups being domestic insurance and pensions funds and investment funds. However, the inflation-linked bonds are also an attractive investment for foreign investors looking to invest across the euro area, as the fixed exchange rate regime implies a strong correlation between inflation in the euro area and Denmark. In addition, like Danish nominal bonds, inflation-linked bonds are included in international indices of inflation-linked bonds, e.g. Bloomberg Global Inflation-Linked Index, further helping to ensure the foreign investor base.

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