Disaggregated Tips: The Case for Disaggregating Inflation-Linked Bonds into Bonds Linked to Narrower CPI Components

18 Pages Posted: 14 Sep 2004

See all articles by William W. Jennings

William W. Jennings

U.S. Air Force Academy - Department of Management

Date Written: September 2004

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 flavors of 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. An appendix highlights disaggregated TIPS applicability to pension schemes with post-retirement health benefit obligations.

Keywords: Consumer price index, CPI, inflation-linked bonds, TIPS, pensions

JEL Classification: G23, H63, J26, G11, J32

Suggested Citation

Jennings, William W., Disaggregated Tips: The Case for Disaggregating Inflation-Linked Bonds into Bonds Linked to Narrower CPI Components (September 2004). Available at SSRN: https://ssrn.com/abstract=587983 or http://dx.doi.org/10.2139/ssrn.587983

William W. Jennings (Contact Author)

U.S. Air Force Academy - Department of Management ( email )

2354 Fairchild Drive
Suite 6H-94
Academy, CO 80840-2944
United States

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