The 'Growing Pains' of TIPS Issuance
Posted: 15 Jan 2009
Date Written: February 2009
This paper provides updated calculations of the relative cost to the U.S. Treasury of previously issued TIPS by comparing the payment stream on each security to that of hypothetical nominal counterpart. While the costs of the program (so measured) are large, totaling $5 to $8 billion to date, I show that they owe largely to market illiquidity in the early years of the program. Indeed, absent these market growing pains, the program would have yielded a substantial net savings to the government as investors were apparently willing to pay a substantial premium to insure against inflation risk.
Keywords: Treasury issuance, inflation risk premium, liquidity premium
JEL Classification: G21
Suggested Citation: Suggested Citation