News release: “A new study released today by the Federal Reserve Bank of New York provides new evidence on the liquidity of Treasury inflation-protected securities (TIPS) and how it differs from that of nominal Treasury securities. The study, The Microstructure of the TIPS Market, is the latest article in the New York Fed’s Economic Policy Review series. Authors Michael J. Fleming and Neel Krishnan explain that the expected benefits from the Treasury’s introduction of TIPS in 1997 have yet to be fully realized, mainly because the securities are less liquid than nominal Treasuries. The relative lack of liquidity is thought to result in TIPS yields having a liquidity premium compared with nominal Treasuries, a factor that offsets the advantages of TIPS having no inflation risk. Despite the importance of TIPS liquidity and the market’s large size–$728 billion in November 2011 – there is hardly any quantitative evidence on the securities’ liquidity. The authors note that published Federal Reserve data show trading activity in TIPS to be much lower than activity in nominal securities. But the Fed data are aggregated over the week and across all TIPS and cover only trading volume. The data therefore do not provide information about activity in particular TIPS, activity over the day or week, or other measures of liquidity, such as bid-ask spreads.”