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Why Does the Treasury Issue Tips? The Tips-Treasury Bond Puzzle / Matthias Fleckenstein, Francis A. Longstaff, Hanno Lustig.
- Format:
- Book
- Author/Creator:
- Fleckenstein, Matthias.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w16358.
- NBER working paper series no. w16358
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2010.
- Summary:
- We show that the price of a Treasury bond and an inflation-swapped TIPS issue exactly replicating the cash flows of the Treasury bond can differ by more than $20 per $100 notional. Treasury bonds are almost always overvalued relative to TIPS. Total TIPS-Treasury mispricing has exceeded $56 billion, representing nearly eight percent of the total amount of TIPS outstanding. TIPS-Treasury mispricing is strongly related to supply factors such as Treasury debt issuance and the availability of collateral in the financial markets, and is correlated with other types of fixed-income arbitrages, These results pose a major puzzle to classical asset pricing theory. In addition, they raise the issue of why the Treasury issues TIPS, since in so doing it both gives up a valuable fiscal hedging option and leaves large amounts of money on the table.
- Notes:
- Print version record
- September 2010.
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