What type of bond creates significant purchasing power risk due to no regular interest payments?

The type of bond that creates significant purchasing power risk due to the absence of regular interest payments is the zero coupon bond. These bonds are issued at a discount to their face value and do not pay periodic interest. Instead, investors receive the bond's face value at maturity. The lack of periodic interest payments means that investors do not receive any cash flow during the life of the bond, which can lead to concerns about inflation.

Purchasing power risk, or inflation risk, is the danger that the returns on an investment will not keep pace with inflation, eroding the real value of the investment. Since zero coupon bonds pay all their yield at maturity, if inflation rises during the bond's term, the investor may find that the real value of the lump-sum payment at maturity is significantly less than they anticipated. Thus, the risk of purchasing power erosion is notably higher with zero coupon bonds than with bonds that provide regular interest payments.