Treasury Inflation-Indexed Debt: A Review of the U.S. Experience

[...]This article describes the U.S. experience with inflationindexeddebt, including the evolution of activity in the TIISmarket since its inception and the valuation of those securitiesrelative to nominal Treasury issues. We show that despite thepotential appeal of TIIS, their yields have been surprisingly high relative to those on comparable nominal Treasurysecurities. Indeed, the spread between ten-year yields onnominal securities and TIIS has, on average, fallen about50 basis points below the long-run inflation expectationsreported in the Survey of Professional Forecasters, conductedby the Federal Reserve Bank of Philadelphia. We analyze severalexplanations for this “valuation puzzle” as well as offerevidence that bears on those explanations.[...]