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The U.S. Treasury issues some bonds as Treasury Inflation Indexed Securities, or TIIS, which are adjusted for inflation, and hence the yields can be roughly
The U.S. Treasury issues some bonds as Treasury Inflation Indexed Securities, or TIIS, which are adjusted for inflation, and hence the yields can be roughly interpreted as real interest rates. Go to the St. Louis Federal Reserve FREDopens in a new tab database and find yields on the following five TIIS securities in order to compare them to their nominal counterparts (given later in the exercise) for September 21, 2023. TIIS Series ID 5 Year TIIS DFII5 7 Year TIIS DFII7 10 Year TIIS DFII10 20 Year TIIS DFII20 30 Year TIIS DFII30 Part 3 Following the Great Recession in 20082009, the 5, 7, 10, and even the 20 year TIIS yields became negative for a period of time. How is this possible? A. Very high demand for TIIS to protect against inflation decreased prices for TIIS to the point where yields on TIIS became negative for a period of time. B. Market participants expected the inflation rate on average to be higher than the real interest rate over that same period, thus the nominal interest rate, as represented by the difference between the treasury and TIIS yields, was negative. C. Very high demand for TIIS to protect against inflation increased prices for TIIS to the point where yields on TIIS became negative for a period of time. Your answer is correct.D. A and B. Part 4 For each of the bond pairs given below, record the TIIS yield and calculate the difference between the nominal and the TIIS yields. Nominal Counterpart TIIS Difference 5 Year 4.61 enter your response here enter your response here 7 Year 4.57 enter your response here enter your response here 10 Year 4.49 enter your response here enter your response here 20 Year 4.74 enter your response here enter your response here 30 Year 4.56 enter your response here enter your response here
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