A bond whose return is linked to some economic index (such as consumer price index, CPI). This includes both interest payment (coupon) over the life of the bond and its redemption value (repayment at maturity). In certain countries, only interest payment is linked to the underlying index.

Other underlying indexes may include foreign currencies, commodities, earnings, etc. The coupon frequency is usually set on a semi-annual basis. The selection of the underlying index may mainly depend on the hedging purposes of the issuer (seller) and the holders (buyers).