The Waning of Information Risk in the U.S. Treasury Inflation-Protected Bond Market

摘要

Prior research by Chu, Pittman, and Yu (2005) documents the information risk found in the US Treasury Inflation-Protected Securities (TIPS) market for the period of 1999-2001. I find that information risk is rapidly waning in the TIPS market when analyzing the 1999-2007 period. The time series dynamics between the TIPS market and the nominal Treasury market more recently resemble those of more established inflation-indexed bond markets such as those found in the United Kingdom and Canada. This result is important for both bond investors and government issuers. Investors may now be able to participate in a more developed and efficient TIPS pricing market. The lack of information risk can lower the borrowing cost for the US government when issuing TIPS bonds.