Do Treasury Nominal Securities and Treasury Inflation-Protected Securities Deliver Equivalent Returns?

Yan He^1, , Junbo Wang² and Uric Dufrene¹

¹School of Business, Indiana University Southeast, New Albany, Indiana, U.S.A

²Department of Economics and Finance, City University of Hong Kong, Kowloon, Hong Kong

Cite this paper:
Yan He, Junbo Wang and Uric Dufrene. Do Treasury Nominal Securities and Treasury Inflation-Protected Securities Deliver Equivalent Returns?. Journal of Finance and Economics. 2024; 12(1):15-23. doi: 10.12691/jfe-12-1-2

Abstract

We analyze the investment returns of Treasury Nominal Securities (TNS) and Treasury Inflation-Protected Securities (TIPS) of the U.S. from January 2003 to December 2021. We find that the month-by-month rolling investments in 5-year TNS and TIPS create similar returns, in line with the equivalence between the month-by-month rolling 5-year breakeven (BE) and Consumer Price Index for all urban consumers (CPIU) inflation rates. However, the rolling investments in 10-year TNS generate significantly higher returns than those in 10-year TIPS, consistent with the rolling 10-year BE inflation rates significantly exceeding their respective CPIU counterparts.

Keywords:
Treasury Nominal Securities (TNS) Treasury Inflation-Protect Securities (TIPS) Yields Returns Inflation

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