The Increased Toxicity of the U.S. Treasury Security Market

5 Pages Posted: 15 Jan 2021 Last revised: 17 Jan 2021

Date Written: January 2, 2021

Abstract

This short research paper documents the fact that exclusively watching for rising yields on conventional U.S. Treasury securities to reflect increased inflationary fears in the U.S. is no longer appropriate. With the Federal Reserve seeking to keep short-term nominal yields near zero for an extended period, conventional Treasury yields have not shown the full extent of rising fears of inflation in financial markets. In this monetary environment, the yields on Treasury Inflation Protected Securities (TIPS) have been more reflective of rising inflation fears. TIPS yields have become increasingly negative in absolute terms during the latter part of 2020. The negative yields on TIPS further suggests that all Treasury investors should be expecting lost purchasing power when they hold onto such securities.

Keywords: Treasury securities, Treasury Inflation Protected Securities, Inflation, Monetary Policy, Federal Reserve

JEL Classification: E4, E5, G1

Suggested Citation

Hein, Scott E., The Increased Toxicity of the U.S. Treasury Security Market (January 2, 2021). Available at SSRN: https://ssrn.com/abstract=3758982 or http://dx.doi.org/10.2139/ssrn.3758982

Scott E. Hein (Contact Author)

Texas Tech University ( email )

PO Box 42101
Lubbock, TX TX 79409
United States

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