Finance Internal Seminar: Gyuri Venter

Presenter: Gyuri Venter, AU

Title: The Term Structure of TIPS-Treasury Mispricing

Abstract: We document the term structure of TIPS–Treasury mispricing. While the dollar mispricing rises monotonically with maturity, the per-year wedge — well-approximated by the spread between the zero-coupon inflation-swap rate and the breakeven inflation rate — is roughly flat and positive across maturities in the overall sample of 2004-2026, declining only at the long end. Over the last six years, however, the per-year wedge slopes downward across the entire curve while staying positive. A Fama–Bliss decomposition shows that the slope of the per-year mispricing curve predicts excess arbitrage profits even though the unconditional excess profit is zero: predictability is entirely conditional. The predictable component survives controlling for mechanical mean-reversion and is concentrated at intermediate maturities, consistent with a state-contingent risk premium rather than convergence alone. These facts establish a systematic structure to the wedge and motivate our investigation of the economic forces — financing, inflation-swap basis, and intermediary balance-sheet costs — that sustain it in equilibrium.

Organizers: Stefan Hirth and Mads Markvart Kjær