Is There an On-the-Run Premium in TIPS?
Recommended citation: Christensen, Jens H. E., Jose A. Lopez, Patrick Shultz. 2020. "Is there an On-The-Run Premium in TIPS?." The Quarterly Journal of Finance https://www.frbsf.org/economic-research/files/wp2017-10.pdf
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 both matching and nearly-matching maturities but of separate vintages are analyzed. Adjusting for differences in conventional liquidity premiums, values of embedded deflation options, and coupon rates, the results show a small, insignificant premium on recently issued TIPS, which leads us to conclude that there is no on-the-run premium in the TIPS market.
Recommended citation: Christensen, Jens H. E., Jose A. Lopez, Patrick Shultz. 2020. “Is there an On-The-Run Premium in TIPS?” The Quarterly Journal of Finance. Volume 10, Number 2. 2020