Information content of U.S. treasury inflation-indexed bonds |
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Authors: | Malek Lashgari |
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Institution: | (1) University of Hartford, USA |
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Abstract: | U.S. Treasury inflation-indexed bonds are designed to provide a stable real return before taxes. A comparison between these
bonds and conventional bonds reveals that the effective real yield of U.S. Treasury inflation-indexed bonds is attractive.
The econometric results suggest, however, that the real rate provided by U.S. Treasury inflation-indexed bonds is not independent
of inflation, implying that the Fisher hypothesis is contradicted by the data. An implication of negative correlation between
the real rate and inflation is that the time to buy U.S. Treasury inflation-indexed bonds is when inflation is low. While
the yields on U.S. Treasury inflation-indexed bonds are shown to reflect inflation by a lag of about one month, nominal interest
rates do not fully adjust to inflation.
The author would like to thank Richard A. Cohn and Mahmoud Wahab for their advice and comments. |
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