Is There an On-the-Run Premium in TIPS?

Christensen, Jens H. E.; Lopez, Jose A.; Shultz, Patrick

doi:10.24148/wp2017-10

Working Paper

Is There an On-the-Run Premium in TIPS?

Abstract: In the U.S. Treasury market, the most recently issued, or so-called ?on-the-run,? security typically trades at a price above those of more seasoned but otherwise comparable securities. This difference is known as the on-the-run premium. In this paper, yield spreads between pairs of Treasury Inflation-Protected Securities (TIPS) with identical maturities but of separate vintages are analyzed. Adjusting for differences in coupon rates and values of embedded deflation options, the results show a small, positive premium on recently issued TIPS - averaging between one and four basis points - that persists even after new similar TIPS are issued and hence is different from the on-the-run phenomenon observed in the nominal Treasury market.

JEL Classification: E43; E47; G12; G13;

https://doi.org/10.24148/wp2017-10