As reported by Bloomberg, an advisory committee to the Treasury has recommended:
The Committee generally agreed that an increase of average maturity in the TIPS program would be best accomplished by reducing or eliminating 5-year TIPS issuance. There was general agreement that given the excess cost to date and the non-transient liquidity premium of TIPS, inflation indexed secruties over the past 10 years have proven to be a less efficient funding mechanism given Treasury’s objective of the lowest cost of borrowing over time. The Committee also reiterated its previous suggestion of moderating the growth of the program and eliminating 5-year TIPS issuance.
Director Ramanathan responded by stating that Treasury remained committed to the TIPS, but that a moderation in the growth of the program has occurred given the pace of issuance ver the past ten years relative to nominal issuance.
A detailed report is alluded to in the linked minutes, but … I can’t find it! Any help on this will be gratefully appreciated.
The discussion, as reported in the report and the minutes, seems to indicate a conclusion that the liquidity premium paid by Treasury outweighs the inflation risk premium recieved (or, more precisely, not paid) by Treasury. The importance of the liquidity premium is researched by the Cleveland Fed.
Sadly, I have not had a chance to read the BIS Quarterly Review article on inflation-indexed bonds with this conclusion firmly in mind.
[…] Readers will remember that continued five-year TIPS issuance is dubious. They will also be aware that the Cleveland Fed has given up trying to figure out what TIPS yields […]
[…] notion that issuance of 5-Year TIPS might be halted has been discussed on PrefBlog, as has a BoE Working Paper on the term-structure of inflation indexed […]