Another way to see what the Fed's zero interest-rate policy (ZIRP) is doing to people who rely on interest earnings for their income is to examine the yield on Treasury inflation-indexed securities
issued by the government.
In recent years, inflation-indexed securities
have become popular for use in portfolios.
The later-morning peak in activity in the indexed market may reflect differences in use and ownership between nominal and inflation-indexed securities
and annuities, among other products, that are now available only in developed markets, may eventually be introduced in the country.
This article reviews the experiences of a few countries that have issued inflation-indexed securities
and draws some common lessons about promoting market liquidity.
The only market-based measure of inflation expectations is the spread between Treasury inflation-indexed securities
(TIIS) and the corresponding non-indexed Treasury issue.
Another unique group of securities issued by the United States Treasury are Treasury Inflation-Indexed Securities
, often called Treasury Inflation-Protected Securities, or TIPS.
The premium they calculated was 50 to 100 basis points, which led them to their prediction that inflation-indexed securities
would overstate expected inflation by that much.
Today, the popularity of Treasury Inflation-Indexed Securities
(TIIS) is on the rise due to the increased demand for fixed-income securities by investors, the increased supply of TIIS, and the increased possibility of higher fluctuation of price levels.
Treasury began issuing inflation-indexed securities
in early 1997.
The other shows that the implied real return on Treasury inflation-indexed securities
has fallen over the past few years even though projected budget deficits have increased.