Global macro stategy

[Leli]

Hi,

I don't really understand wording & computation in the global macro strategy example (page 75 from study notes).
It's written :
long position : FNIPS provides real yield
short position FNB provides nominal yield (i though it was just the coupon, but in the core reading from stowell, we can read that "ENB is a nominal note so its yield is nominal yield = real yield + expected inflation" (error in the book?))

Then calculation of gain/losses
FNIPS using Real yield + inflation (i thought it was "real yield" only).
and for FNB, you use just coupon.

Maybe i just need better definitions for real yield and nominal yield...
For me : real yield = nominal + inflation (or - deflation)
and nominal = return from investment (coupon)

Thanks a lot,

Leli

 

[Ankur S]

FNIPS is an Inflation protected security, so you will get real yield + inflation return as well (which makes you protected)

With normal (or nominal) fixed-income investments, investors will bear inflation risk (returns could be eroded by inflation)...which is our FNB Bond in this case which pays nominal return

I hope i have it right
Ankur