Duration and Pricing of TIPS

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

“…To capture the more general concept of convenience yield in nominal Treasuries, we look at the difference between the overnight repo rates for the on-therun 10-year nominal Treasury and the on-the-run 10-year TIPS, plotted in Graph D. 37 Motivated by Christensen and Gillan (2017), we also include a time dummy that equals 1 in the weeks during which the Federal Reserve purchased TIPS as part of its various asset purchase programs during the recent financial crisis, and 0 otherwise. 34 See Jacoby and Shiller (2008), Wright (2009), Christensen et al (2010), and Grishchenko, Vanden, and Zhang (2016) for more details. 35 For example, Wright (2009) showed that two TIPS with similar maturity dates but different issue dates, the Apr.…”

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

“…We adjust the quoted real prices and future real coupon and principal payments by the expected seasonal factor, which is proxied by the average ratio of non-seasonally-adjusted CPI to seasonally adjusted CPI over the previous five years. A detailed description of the methodology can be found inGrishchenko, Li, and Vollmer (2015).39 SeeJacoby and Shiller (2008),Wright (2009),Christensen et al (2010),Grishchenko, Vanden, and Zhang (2016) for more details.40 For example,Wright (2009) showed that two TIPS with similar maturity dates but different issue dates-the April 2013 TIPS issued in 2008 and the July 2013 TIPS issued in 2003-were traded at nearly identical real yields prior to September 2008, but the yield spread widened to as much as 200 basis points in December 2008, as the price of the more recently issued April 2013 TIPS rose, reflecting the higher value of the deflation floor, while the price of the July 2013 TIPS dropped.41 Alternatively, one could derive the value of the embedded deflation floor in any individual TIPS using the…”

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

“…We adjust the quoted real prices and future real coupon and principal payments by the expected seasonal factor, which is proxied by the average ratio of non-seasonally-adjusted CPI to seasonally adjusted CPI over the previous five years. A detailed description of the methodology can be found inGrishchenko, Li, and Vollmer (2015).39 SeeJacoby and Shiller (2008),Wright (2009),Christensen et al (2010),Grishchenko, Vanden, and Zhang (2016) for more details.40 For example,Wright (2009) showed that two TIPS with similar maturity dates but different issue dates-the April 2013 TIPS issued in 2008 and the July 2013 TIPS issued in 2003-were traded at nearly identical real yields prior to September 2008, but the yield spread widened to as much as 200 basis points in December 2008, as the price of the more recently issued April 2013 TIPS rose, reflecting the higher value of the deflation floor, while the price of the July 2013 TIPS dropped.41 Alternatively, one could derive the value of the embedded deflation floor in any individual TIPS using the…”