Treasury Inflation-Protected Securities Research Articles

Features and Risks of Treasury Inflation Protection Securities

Features and Risks of Treasury Inflation Protection Securities

The Information Content of Tips

On January 29th, 1997, an historical date for the U.S. Treasury, the first inflation-indexed Treasury notes, for a nominal value of 7 billion of dollars, have been auctioned. These securities are also called Tips (Treasury inflation-protected securities). Subsequently, the Chicago Board of Trade (CBOT) has proposed two contracts (a futures contract and a futures option) written on Tips. In this paper, after reviewing the characteristics of Tips and CBOT contracts, a pricing model is proposed.

Information Aggregation, Inflation, and the Pricing of Indexed Bonds

Using daily prices of indexed bonds between 1970 and 1979, we test whether announcements of the Israeli CPI contain information that is not already reflected in bond prices. The results indicate that bond prices reflect about 85 percent of the new information about inflation as it occurs (i.e., when the Central Bureau of Statistics samples prices). The announcement of the CPI 15 days after the end of the sampling period causes the remaining 15 percent adjustment in bond prices. This evidence raises questions about the empirical importance of misperceptions about inflation as a source of nonneutrality in monetary policy.