And we can bear the risk of inflation more efficiently than can any single investor, no matter how large. On balance, while exhibiting less volatility, they have underperformed their conventional cousins because inflation news has been more favorable than the market had expected. That corresponds to lower returns, ex post, for investors and lower debt servicing costs, thus far, for the government. This relation would be reversed if the news on inflation ever turns less favorable than expected. That is not the whole story, however.
Investors give up some yield on an indexed security in return for inflation protection.
Although the features of the indexed securities differ markedly from their fixed-rate cousins and the size of the issues are considerably smaller, trading volume does appear to be low. While I would not want to hazard a final pronouncement on this point, part of the answer may be that Treasury has discovered a security that investors actually want to buy and hold. The key questions from Treasury's perspective are whether the securities are being distributed to a wide spectrum of investors and whether investors who hold the securities are comfortable with their positions. The answer to both of these questions is yes. The primary dealer community has been awarded between half and two-thirds of each of the three auctions to date.