Treasury Inflation-Indexed Securities


Also found in: Acronyms.

Treasury Inflation-Indexed Securities (TIIS)

Refers to a broad range of U.S. Treasury securities that are inflation indexed. The most popular are the TIPS. The index for measuring the inflation rate is the non-seasonally adjusted U.S. City Average All Items Consumer Price Index for All Urban Consumers (CPI-U), published monthly by the Bureau of Labor Statistics (BLS).

Treasury Inflation-Protected Security

A U.S. Treasury security that protects the bondholder from inflation. Most Treasury securities, like most fixed dollar obligations, pay a fixed coupon rate periodically and mature at par. While this carries low risk, it exposes investors to the possibility that the inflation rate will outpace the interest rate represented on the coupon. In order to protect against this, a Treasury Inflation-Protected Security automatically increases its principal according to the inflation rate as tracked by the Consumer Price Index. Thus, while the coupon rate does not increase, the dollar amount paid does. Because TIPS are so safe, they offer a very low rate of return. See also: Real Return Bond.
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Indeed, as we observe in this article, this was one of the primary arguments for issuing Treasury inflation-indexed securities. TABLE 1 Typical Bid-Ask Spreads for Treasury Securities 1/32nds of Price Maturities of Maturities of Maturities Five Years or Five to Ten beyond Ten Type Less Years Years On-the-run nominal 1/4 to 1/2 1/2 NA Off-the-run nominal 1/2 to 1 1/2 to 1 2 Inflation-indexed 1 to 2 2 4 to 16 Source: Federal Reserve Bank of New York (informal survey of dealers conducted in mid-2003).
Treasury inflation-indexed securities were first issued in January 1997.
A measure of expected inflation can be derived by subtracting the interest rate on Treasury inflation-indexed securities (a real rate) from that on non-indexed Treasury securities (a nominal rate).
Treasury inflation-indexed securities (TIIS), which adjust their principal and interest for inflation, provide a direct measure of real rates.
Treasury inflation-indexed securities (TIIS) adjust their principal and interest for inflation, giving a direct measure of real rates.
Another way to gauge long-term inflation expectations is by subtracting the yield on 10-year Treasury inflation-indexed securities (TIIS), a signal of the real rate of interest, from the 10-year Treasury bill.
This explanation is confirmed by a fall in the 10-year Treasury inflation-indexed securities (TIIS) yield, which is a real interest rate.
The decline in Treasury inflation-indexed securities' inflation compensation and the relative stability of survey measures of long-term inflation expectations offer some comfort.

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