Tips from Tips: The Informational Content of Treasury Inflation-Protected Security Prices

Posted: 9 Jul 2021

See all articles by Stefania D'Amico

Stefania D'Amico

Federal Reserve Bank of Chicago

Don H. Kim

Board of Governors of the Federal Reserve System

Min Wei

Board of Governors of the Federal Reserve System

Multiple version iconThere are 6 versions of this paper

Date Written: January, 2014

Abstract

Treasury Inflation-Protected Securities (TIPS) are frequently thought of as risk-free real bonds. Using no-arbitrage term structure models, we show that TIPS yields exceeded risk-free real yields by as much as 100 basis points when TIPS were first issued and up to 300 basis points during the recent financial crisis. This spread reflects predominantly the poorer liquidity of TIPS relative to nominal Treasury securities. Other factors, including the indexation lag and the embedded deflation protection in TIPS, play a much smaller role. Ignoring this spread also significantly distorts the informational content of TIPS breakeven inflation, a widely-used proxy for expected inflation.

JEL Classification: E43, E44, G01, G12

Suggested Citation

D'Amico, Stefania and Kim, Don H. and Wei, Min, Tips from Tips: The Informational Content of Treasury Inflation-Protected Security Prices (January, 2014). FEDS Working Paper No. 2014-24, Available at SSRN: https://ssrn.com/abstract=3877860

Stefania D'Amico (Contact Author)

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604
United States

Don H. Kim

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Min Wei

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
29
PlumX Metrics