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Fixed Income Markets and Their Derivatives, 3rd Edition by Suresh Sundaresan

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Chapter 13

Inflation-linked debtTreasury inflation-protected securities

Chapter Summary

This chapter describes indexed bond markets in various parts of the world. The following issues are explored in this chapter: What are Treasury inflation-protected securities (TIPS)? How do TIPS’ yields differ from those of nominal government securities? What is break-even inflation level (BEI)? What are the important contractual and tax provisions of TIPS? Are TIPS useful in generating forecasts of future inflation? The chapter explains how TIPS are sensitive to real rates but relatively insensitive to inflation risk. The role of TIPS in a broad portfolio is addressed by documenting their relatively low to negative correlation with key asset classes. The return ...

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