Indexed bonds could save U.S. billions in borrowing costs annually.
The U.S. Treasury plans to issue inflation-indexed bonds to lower borrowing costs if the yield curve includes an inflation risk premium. In the UK, indexed bonds help predict inflation and guide monetary policy. By analyzing bond yields and inflation data from 1984 to 1996, it was found that both inflation risk and real term premiums were significant. Indexed bonds could have saved 20% of the expected borrowing cost for 10-year notes.