Timothy Bitsberger Deputy Assistant Secretary U.S. Treasury Department Treasury Debt Management.

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Presentation transcript:

Timothy Bitsberger Deputy Assistant Secretary U.S. Treasury Department Treasury Debt Management

Treasury Inflation-Protection Securities Treasury’s Perspective Widen investor base Reduce/eliminate term premium Investor’s Perspective Improve portfolio diversification Protect against inflation better than real estate, commodities, or other real assets

TIPS Structure The principal value is adjusted for inflation by multiplying the value at issuance by an index ratio that changes daily. The inflation accrual on principal is paid at maturity. The coupon payments are a fixed percentage, determined at auction, of the inflation-adjusted value of the principal. The principal repayment at maturity is protected against deflation, but the semi-annual coupon payments are not protected against deflation. The inflation accrual is based on the CPI-U NSA with a 3-month lag (e.g., index number for July 1 st is based on the April CPI report which was released in mid-May). Daily indexed numbers are calculated using straight-line interpolation between first-of-month numbers. The index ratio for a particular valuation date is the index number for that date divided by the index number for the dated date. Index Ratio Value Date = Index number for value date Index number for dated date

TIPS Auction Schedule July yr TIPS, auction 7/8/04, settle 7/15/04, mature 7/15/ ½-yr TIPS, auction 7/27/04, settle 7/30/04, mature 1/15/25 October ¾-yr TIPS, auction 10/7/04, settle 10/15/04, mature 7/15/14 - 5½-yr TIPS, auction 10/26/04, settle 10/29/04, mature 4/15/10 January yr TIPS, auction 1 st half of month, settle on 15 th, mature 1/15/ yr TIPS, auction 2 nd half of month, settle last business day of month, mature 1/15/25 April ¾-yr TIPS, auction 1 st half of month, settle on 15 th, mature 1/15/ yr TIPS, auction 2 nd half of month, settle last business day of month, mature 4/15/10 * Tentative Schedule

TIPS Supply Inflation-Adjusted Par Amount Outstanding Source: US Treasury

* 2004 issuance amounts are tentative and not necessarily indicative of future auction sizes.

* Source: New York Fed

SIZE OF GLOBAL INFLATION-INDEXED BOND MARKET VS. OTHER ASSET CLASSES Source: Bridgewater Associates

Distribution of Competitive Auction Awards of 10-Year Treasury Notes

I/I BOND CORRELATION TO OTHER ASSETS AND INFLATION Source: Bridgewater Associates