Journal of Finance Vol. 69 No. 5 2014
The TIPS‐Treasury Bond Puzzle
open access
Abstract
We show that the price of a Treasury bond and an inflation‐swapped Treasury Inflation‐Protected Securities (TIPS) issue exactly replicating the cash flows of the Treasury bond can differ by more than $20 per $100 notional. Treasury bonds are almost always overvalued relative to TIPS. Total TIPS‐Treasury mispricing has exceeded $56 billion, representing nearly 8% of the total amount of TIPS outstanding. We find direct evidence that the mispricing narrows as additional capital flows into the markets. This provides strong support for the slow‐moving‐capital explanation of arbitrage persistence.
- DOI
- 10.1111/jofi.12032
- Volume
- 69
- Issue
- 5
- Pages
- 2151-2197
- Language
- en
- Sources
- openalex crossref bibtex:phds-export.bib