The TIPS-treasury bond puzzle

• Autores: Matthias Fleckenstein, Francis A. Longstaff, Hanno Lustig
• Localización: The Journal of finance, ISSN 0022-1082, Vol. 69, Nº 5, 2014, págs. 2151-2197
• Idioma: inglés
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• Resumen

  • 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.