Is there any inflation expectation incorporated in an RRBs price?
Yes. This can be estimated by comparing the yield of a nominal bond with a similar maturity as the RRB. If the 01Dec21 RRB yields 3.79% and the closest nominal GoC bonds, the Jun 2021 and Jun 2022 bonds, yield 5.87% and 5.91% respectively, the implied nominal yield for the RRB is about 5.89% (the average of the two closest nominal bonds) and the inflation expectation is about 5.89%-3.79%, or 2.1%. If the average inflation rate from now until 2021 exceeds 2.1%, then the RRB will have been the better investment. Conversely if inflation is lower than 2.1%, the nominal bond will have been a better investment.
