Amihud

Berndt

Campbell

Davies

Don H. Kim

Fleming

Foresi

Gürkaynak

Harvey

Hördahl

Mehra

Min Wei

Pflueger

Piazzesi

Sack

Shen

Stefania D’Amico

Svensson

Vayanos

Wright

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 2007–2008 financial crisis. This spread predominantly reflects 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 break-even inflation, a widely used proxy for expected inflation.</jats:p

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Journal of Financial and Quantitative Analysis

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

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

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