An Ex Post Performance Analysis of the TIPS Program

Abstract

This article extends the methodology in Sack and Elsasser [2004] and Roush [2007] to define and measure the performance of the Treasury inflation-protected securities (TIPS) program in terms of the relative cost over issuing equivalent nominal securities. The relative cost is driven by the change of the breakeven inflation and, in particular, that of the liquidity-adjusted inflation risk premium when the inflation expectation is stable. We use all 96 TIPS issuances since the inception of the program (January 1997) to June 2012 to calculate a 185-month time series of relative costs at CUSIP and aggregate levels. As of June 2012, we find that the TIPS program has accumulated a relative saving of $7.06 billion. If past is prologue, we would expect relative savings from the TIPS program to continue.