EconPapers    
Economics at your fingertips  
 

Tips from TIPS: the informational content of Treasury Inflation-Protected Security prices

Stefania D'Amico, Don H. Kim and Min Wei

No 2014-24, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

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.

Keywords: TIPS; Breakeven; No-arbitrage term structure model; Liquidity; Expected inflation; Inflation risk premium; Survey forecasts; Indexation lag; Deflation floor (search for similar items in EconPapers)
JEL-codes: E43 E44 G01 G12 (search for similar items in EconPapers)
Date: 2014-01-31, Revised 2016-02-19
New Economics Papers: this item is included in nep-fmk, nep-for and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5) Track citations by RSS feed

Downloads: (external link)
http://www.federalreserve.gov/pubs/feds/2014/201424/201424pap.pdf Full text (application/pdf)

Related works:
Journal Article: Tips from TIPS: The Informational Content of Treasury Inflation-Protected Security Prices (2018) Downloads
Working Paper: Tips from TIPS: the informational content of Treasury Inflation-Protected Security prices (2010) Downloads
Working Paper: Tips from TIPS: the informational content of Treasury Inflation-Protected Security prices (2008) Downloads
Working Paper: Tips from TIPS: the informational content of Treasury Inflation-Protected Security prices (2008) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2014-24

Access Statistics for this paper

More papers in Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.) Contact information at EDIRC.
Bibliographic data for series maintained by Ryan Wolfslayer ; Keisha Fournillier ().

 
Page updated 2020-02-24
Handle: RePEc:fip:fedgfe:2014-24