The liquidity premium stems from the fact that the market for TIIS
is less liquid than the market for nominal Treasury securities.
At that time, 5-year, 10-year, and 30-year TIIS
This study attributes this "valuation puzzle" to several factors: investor difficulty adjusting to a new asset class, divergent supply trends between TIIS
and nominal Treasuries, and the lower liquidity of TIIS
The difference between the TIIS
yield and that of nominal Treasury securities should be a very good measure of expected inflation: A conventional Treasury instrument's yield should equal the yield on an otherwise similar TIIS
plus the expected inflation rate and a premium for inflation risk--the extra return investors require because inflation may be higher or lower than expected.
At auctions of Treasury Inflation Indexed Securities (TIIS
), the Desk continued to adhere to its practice of tendering for no more than 5 percent of new issues, though by midyear there were no maturing issues to exchange for TIIS
Jayne points out that this makes a portfolio of TIIS
bonds inconvenient for replacing lost earning capacity.
Kim, "Visual Observation Confidence based GMM Face Recognition robust to Illumination Impact in a Real-world Database," TIIS
We measure the real long-term rate of interest of on-the-run (that is, most recently issued) 10-year TIIS
One reason expected inflation from TIIS
data might underestimate actual expected inflation is that the market for TIIS
is less liquid than other government bonds; thus, their real returns are overstated.
One reason that expected inflation derived from TIIS
data might be underestimated is that the TIIS
market is less liquid than other government bonds; consequently, bid-ask spreads for TIIS
tend to be larger than for the others.
1) Sack matches the on-the-run 10-year TIIS
with a portfolio of nominal Treasury STRIPS (Separate Trading of Interest and Principal Securities) that replicates the pattern of expected payments of the TIIS
32) Since the program's inception in January 1997, about $92 billion of TIIS
have been issued.