Finance and Economics Discussion Series (FEDS)
February 2008
The "Growing Pains" of TIPS Issuance
Abstract:
This paper provides updated calculations of the relative cost to the U.S. Treasury of previously issued TIPS by comparing the payment stream on each security to that of hypothetical nominal counterpart. While the costs of the program (so measured) are large, totaling $5 to $8 billion to date, I show that they owe largely to market illiquidity in the early years of the program. Indeed, absent these market growing pains, the program would have yielded a substantial net savings to the government as investors were apparently willing to pay a substantial premium to insure against inflation risk.
Full Paper (Screen Reader Version)Keywords: Treasury issuance, inflation risk premium, liquidity premium
PDF: Full Paper
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