Treasury Inflation-Indexed Debt: A Review of the U.S. Experience

40 Pages Posted: 16 Sep 2002

See all articles by Brian P. Sack

Brian P. Sack

Board of Governors of the Federal Reserve - Monetary and Financial Market Analysis Section

Robert Elsasser

Federal Reserve Banks - Federal Reserve Bank of New York

Multiple version iconThere are 2 versions of this paper

Date Written: June 4, 2002

Abstract

This paper reviews the U.S. experience with inflation-indexed debt. To date, Treasury inflation-indexed securities have not been highly valued by investors, with the spread between the yields on nominal and inflation-indexed securities falling consistently below most measures of long-run inflation expectations. A number of factors might have contributed to the low relative valuation of TIIS, including the difficulty for investors of adjusting to a new asset class, the concentration of participation in the market, the lower liquidity of TIIS relative to nominal Treasury securities, and the divergent trends in the supply of nominal and inflation-indexed Treasury debt. As a result, inflation-indexed debt has not yet lived up to one of its main purposes--to reduce financing costs to the Treasury. However, there are signs that the TIIS market is still evolving, which could affect the valuation of TIIS going forward.

Keywords: Inflation-indexed debt, TIPS

JEL Classification: G10, E60

Suggested Citation

Sack, Brian P. and Elsasser, Robert, Treasury Inflation-Indexed Debt: A Review of the U.S. Experience (June 4, 2002). Available at SSRN: https://ssrn.com/abstract=325321 or http://dx.doi.org/10.2139/ssrn.325321

Brian P. Sack (Contact Author)

Board of Governors of the Federal Reserve - Monetary and Financial Market Analysis Section ( email )

20th and C Streets, NW
Washington, DC 20551
United States
202-736-5671 (Phone)
202-452-2301 (Fax)

Robert Elsasser

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

New York, NY 10045
United States

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