What are inflation-protected bonds and how does that protection work, exactly?
The inflation-protected securities market here in the United States started in 1997 and since then the government has issued over $150 billion worth of treasuries with inflation protection. One of the reasons the government wanted to issue this type of security was because it gives the Treasury a direct read on what the markets expecting for future inflation, so its a barometer for them for future inflation expectations. Over time the government has issued about 4% of their debt outstanding in treasuries with inflation protection. That number fluctuates year-to-year depending on how much treasury debt they are issuing. Right now theyre moving from a three-times-a-year issuance cycle to a four-times-a-year issuance cycle. So there is definite support to continue this program. There are currently 11 issues outstanding. The shortest issue matures in 2007, and the longest issue matures in 2032 and they are now focusing on 10-year issuance. When you look at trading volume, it is somewhere b
