Inflation-Indexed Bonds
摘要
Introduction Inflation-linked bonds, which in the US are known as Treasury Inflation Protected Securities (or TIPS), are bonds that pay investors a fixed inflation-adjusted coupon and principal. Their nominal payments adjust automatically with the evolution of a price index describing the cost of a basket of consumer goods such as the Consumer Price Index in the US. Although the popular press often labels inflation-indexed bonds as exotic securities, nothing could be farther from reality. Inflation-indexed bonds constitute today a significant fraction of outstanding bonds issued by the US Treasury--around 10% of total marketable debt, and more than 3.5% of GDP. Both institutional investors such as endowments and pension funds and retail investors hold them in their portfolios, either directly or indirectly through TIPS mutual funds, ETFs, and asset allocation funds such as target retirement funds. TIPS have become a building block of investors' portfolios. TIPS also play an important role in policy. Central bankers, professional economists, and market observers routinely follow the evolution of breakeven inflation, or the spread between the yields on nominal government bonds and the yields on inflation-indexed bonds of equivalent maturity, as an indicator of real-time inflation expectations from bond market participants. The relevance of inflation-indexed bonds to investors and policy makers is not unique to the US. The UK has a longer and even more established tradition of issuing and investing in inflation-linked bonds (or gilts as government bonds are known in the UK). Inflation-indexed linkers represent more than 30% of British public debt, equivalent to almost 10% of UK GDP. The UK government is now considering issuing inflation linkers with super-long maturities (in excess of 50 years) and even perpetual inflation-indexed gilts. In the Euro area, France, Germany, and Italy regularly issue inflation linkers, linked to either Euro-area inflation or to domestic i