Private Indexed Issues

A subpage of The U.S. Real Term Structure
by J. Huston McCulloch
Department of Economics, Ohio State University

A small number of privately-issued CPI-indexed issues are on the market. By entering ILB <GO> on the Bloomberg Screen, you may obtain a list of all securities linked to US inflation. As of May 3, 1999, there were 18 non-Treasury securities listed there. These, with their maturity years and sizes in $ millions, are:

Issuer Mat $M
Anchor Savings 2008 80
Fed Farm Credit 2002 100
Fed Home Ln Bank 2002 300
Fed Home Ln Bank 2007 100
Fannie Mae 2002 100
JP Morgan 2012 200
Korea Dev Bank 2002 300
Merrill Lynch 2002 25
Nationsbank Corp 2001 100
Salomon Inc 2002 450
Sallie Mae 2000 200
Toyota Mtr Cred 2002 100
TVA 2007 300
Regl Fin Auth-Pa 2027 70
Gulf Breeze-FL 2017 82
Ill Dev Fin Auth 2019 31
Orlando Waste-FL 2015 27
Sarasota Pub-FL 2021 15

Pass-through securities based on price-level adjusted mortgages (PLAMs) do not yet exist, but are another potentially attractive inflation-indexed instrument. Nominal mortgage-backed securities are currently yielding about 130 basis points above 10-year nominal Treasuries. This suggests that PLAM-backed securities yielding a similar premium above the 10-year real rate would be comparably attractive. Assuming 50 basis points for servicing, this would permit a real cost to the borrower of about 180 basis points above the 10-year real rate, net of mortgage insurance if required by the loan-to-equity ratio.