Inflation-Linked vs Fixed Rate

A fixed-rate RSB pays a nominal yield: the rate Treasury quoted on the day you bought it, applied to your original capital, until maturity. An inflation-linked RSB (ILB) pays a real yield: a smaller coupon, applied to a capital amount that grows with inflation.

The two are not interchangeable. They protect against different things and are usefully held together.

What "real" means in practice

The headline CPI series published by Stats SA each month is the index Treasury uses to adjust ILB capital. The reference CPI lags by three to four months: on the 1st of a month it is the CPI for the fourth month before, and on any other day Treasury interpolates by day towards the following month's figure. So the reference CPI for the 31 May 2026 coupon sits 30/31 of the way from January 2026's CPI to February 2026's, which is almost exactly February's. This lag exists because the index value is itself only finalised some weeks after the reference month.

If you bought a 5-year ILB at a 4% real coupon and CPI ran at 5% over those five years, your nominal return is approximately:

(1 + 0.04) × (1 + 0.05) − 1 ≈ 9.2% per year

That is not the same as 9% on a fixed-rate bond. With a fixed bond your capital is fixed in nominal terms; with an ILB your capital is fixed in real terms. In a deflationary year ILB capital can shrink, and the coupon is then worked out on the smaller amount, though it stays positive. The only floor is at maturity: if the indexed capital is below what you originally invested, Treasury pays you the shortfall. Coupons and early withdrawals along the way have no such protection.

When fixed wins

• You need a known nominal cash flow on a known date — pension top-up, school fees, a known lump-sum obligation.
• Inflation expectations are falling and you want to lock in today's higher nominal yield.
• The fixed nominal rate is well above the ILB real rate plus realistic inflation expectations.

When inflation-linked wins

• You're saving for something whose price tracks inflation — long-dated living expenses, a long-horizon goal a decade or more out.
• You're worried about a regime change in inflation and don't trust a fixed nominal rate to keep up.
• The break-even inflation rate (the difference between the nominal yield curve and the real yield curve at the same tenor) is below your own inflation forecast.

A working comparison

Suppose the 5-year fixed rate is 9.25% and the 5-year ILB is 4.75% real. The break-even inflation rate is roughly 9.25% − 4.75% = 4.5%.

• If you expect average inflation over the next five years to be below 4.5%, the fixed bond pays more.
• If you expect average inflation to be above 4.5%, the ILB pays more.
• If you don't have a strong view, holding a mix is rational — it diversifies the inflation regime risk.

The Rates & Yields page plots both lines side by side: the right axis is real, the left axis is nominal, so the visual gap is the implied break-even.