Zero Coupon Inflation Swaps: Current & Historic UK Zero Coupon Swap Rates

A zero coupon inflation swap is a derivative with a single exchange at maturity: one side pays a fixed rate compounded over the life of the trade, the other pays the realised growth in the inflation index over the same period. No payments change hands until maturity, hence zero-coupon. It is the standard contract in the UK and euro inflation markets.

Take a 5-year zero coupon inflation swap on UK RPI struck at 3% on £10m notional. At maturity the fixed payer owes £10m × (1.03⁵ − 1) ≈ £1.59m. If RPI actually grew 20% over the five years, the inflation payer owes £10m × 0.20 = £2.0m. Only the £0.41m difference settles. The fixed payer locked inflation at 3% and gained because realised inflation ran higher.

Because a single exchange at maturity makes the quoted rate a pure read on average annual inflation to that horizon, with no reinvestment assumptions, no coupon timing effects. That's why the zero-coupon curve is the market's inflation term structure, and why year-on-year swaps and more complex inflation structures are priced off it.

Yes. Zero-coupon inflation-indexed swap (ZCIIS) is the formal name for the same contract, used in academic papers and some term sheets. You will also see the word order flipped to ‘inflation zero coupon swap’ on desks and confirmations, and the shorthand ‘zero coupon swap’ where the inflation index is understood. All of these describe the single-exchange structure quoted on this page.

No. A zero coupon swap is any swap with a single exchange at maturity. In interest rate markets it means a swap whose fixed leg compounds up to one payment instead of paying periodic coupons. In the inflation market the zero coupon structure is the default, so a zero coupon swap rate quoted on UK RPI or CPI refers to the contract on this page: compounded fixed rate against realised index growth, settled once at maturity.

They are built the same way but describe different things. A zero coupon yield curve, the zero curve, gives the zero coupon rate for discounting a single cash flow at each maturity, bootstrapped from bonds or interest rate swaps. The zero coupon inflation curve on this page gives the fixed rate the market will exchange for realised inflation to each horizon. Valuing a zero coupon inflation swap uses both: the inflation curve sets today's market level, and the SONIA zero curve discounts the maturity exchange.

Mark-to-market on a zero coupon inflation swap compares the strike you locked with today's zero-coupon rate for the remaining horizon, adjusted for the inflation already accrued since the start, and discounts the net maturity exchange on the OIS curve (SONIA for GBP). A seasoned trade can move a long way from zero: the 2021–22 inflation spike left legacy fixed payers deep in the money.

Pension schemes and LDI managers hedging inflation-linked liabilities, infrastructure and PFI teams with RPI- or CPI-linked revenues, utilities and housing associations with index-linked debt, and real estate investors with indexed leases. Anyone with cash flows that move with an inflation index can swap that uncertainty for a fixed rate.

BlueGamma publishes zero coupon inflation swap curves for UK RPI, UK CPI and EUR HICP, 1 to 50 years. Current and historical values, updated every business day, in the web app, the Excel Add-in and the API. Start a free 14-day trial (no card required) to see them.