Journal Article

Benefits and limitations of inflation indexed Treasury bonds

Abstract: In recent years, members of Congress and academia have repeatedly urged the U.S. Treasury to issue some portion of its debt in the form of inflation indexed bonds. With an indexed bond, the interest and maturity value are adjusted by the rate of inflation over the life of the bond. Because the cash flow of an indexed bond is adjusted for inflation, the bond's real value does not vary with inflation, protecting investors and issuers alike from inflation risk.> Inflation indexed bonds would be a fundamental innovation in U.S. financial markets, providing benefits to investors, the Treasury, and policymakers. Despite the potential benefits, the U.S. Treasury has never issued indexed bonds. In fact, only a handful of industrialized countries, including the United Kingdom and Canada, have issued inflation indexed government bonds.> Shen discusses the benefits of inflation indexed Treasury bonds and points out some of their limitations. She concludes that, if carefully designed, inflation indexed Treasury bonds are likely to be beneficial.

Bibliographic Information

Provider: Federal Reserve Bank of Kansas City

Part of Series: Economic Review

Publication Date: 1995

Volume: 80

Issue: Q III

Pages: 41-56