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Why are TIIS yields so high? The case of the missing inflation-risk premium

Author

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  • Ben R. Craig

Abstract

Treasury inflation-indexed securities are just like nominal Treasuries, except that their coupon and principal payments are indexed to inflation. The yield spread between the two types of securities should serve as a daily measurement of the market's perception of expected inflation, modified to reflect the cost of inflationary risk. But TIIS yields are about 60 basis points higher than expected. This Commentary examines several factors other than inflation that might raise TIIS yields relative to nominal Treasuries.

Suggested Citation

  • Ben R. Craig, 2003. "Why are TIIS yields so high? The case of the missing inflation-risk premium," Economic Commentary, Federal Reserve Bank of Cleveland, issue Mar.
  • Handle: RePEc:fip:fedcec:y:2003:i:mar15
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    Citations

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    Cited by:

    1. Ian Christensen & Frédéric Dion & Christopher Reid, 2004. "Real Return Bonds, Inflation Expectations, and the Break-Even Inflation Rate," Staff Working Papers 04-43, Bank of Canada.
    2. Gilbert Cette & Marielle de Jong, 2013. "Breakeven inflation rates and their puzzling correlation relationships," Applied Economics, Taylor & Francis Journals, vol. 45(18), pages 2579-2585, June.
    3. repec:ebl:ecbull:v:5:y:2008:i:31:p:1-8 is not listed on IDEAS
    4. Anari, Ali & Kolari, James, 2019. "The Fisher puzzle, real rate anomaly, and Wicksell effect," Journal of Empirical Finance, Elsevier, vol. 52(C), pages 128-148.
    5. Monika Chopra & Chhavi Mehta & Aman Srivastava, 2021. "Inflation-Linked Bonds as a Separate Asset Class: Evidence from Emerging and Developed Markets," Global Business Review, International Management Institute, vol. 22(1), pages 219-235, February.
    6. Sumner Scott, 2006. "Let a Thousand Models Bloom: The Advantages of Making the FOMC a Truly 'Open Market'," The B.E. Journal of Macroeconomics, De Gruyter, vol. 6(1), pages 1-27, October.
    7. Marielle de Jong & Gilbert Cette, 2008. "The rocky ride of break-even inflation rates," Economics Bulletin, AccessEcon, vol. 5(31), pages 1-8.

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