Economic Policy Review
Treasury Inflation-Indexed Debt: A Review of the U.S. Experience
May 2004 Volume 10, Number 1
JEL classification: G10, E60

Authors: Brian Sack and Robert Elsasser

This article describes the evolution of Treasury inflation-indexed debt securities (TIIS) since their introduction in 1997. Over most of this period, TIIS yields have been surprisingly high relative to those on comparable nominal Treasury securities, with the spread between the nominal and indexed yields falling well below survey measures of long-run inflation expectations. The authors argue that the low relative valuation of TIIS may have reflected investor difficulty adjusting to a new asset class, supply trends, and the lower liquidity of indexed debt. In addition, investors may have had a benign outlook for inflation and may not have demanded much, if any, of an inflation risk premium to hold nominal securities. As a result, inflation-indexed debt has not yet lived up to one of its main purposes: to reduce the Treasury's expected financing costs. More recently, though, TIIS market liquidity and the breadth of investor participation have increased considerably, and the valuation of these securities appears to have improved.

PDF full articlePDF17 pages / 212 kb
Related New York Fed Content
By continuing to use our site, you agree to our Terms of Use and Privacy Statement. You can learn more about how we use cookies by reviewing our Privacy Statement.   Close