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Disaggregated TIPS: the case for disaggregating inflation-linked bonds into bonds linked to narrower CPI components Slicing and Dicing TIPS

Published online by Cambridge University Press:  23 August 2006

WILLIAM W. JENNINGS
WILLIAM W. JENNINGS
Affiliation:
U.S. Air Force Academy, (e-mail: wj@williamjennings.com)
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Abstract

Investors generally face inflation-linked obligations – a fact contributing to the popularity of TIPS and other inflation-linked bonds. With TIPS, one characterization of inflation, the Consumer Price Index, applies to all investors. Investors, however, face different inflation. To date, these heterogeneous needs have not been addressed by the inflation-linked marketplace. The paper describes the case for and mechanics of splitting TIPS into disaggregated TIPS matched to components of the Consumer Price Index. Disaggregated TIPS better address the risks of investors' specific real liabilities. A case study highlights disaggregated TIPS applicability to retirees with heavier post-retirement medical needs.

Type
Issues and Policy
Information
Journal of Pension Economics & Finance , Volume 5 , Issue 3 , November 2006 , pp. 325 - 343
Copyright
2006 Cambridge University Press

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