Analysis-US government shutdown may prompt first-ever workaround for inflation-protected bonds

Core Viewpoint - The U.S. government shutdown is impacting the release of inflation data, which may lead to a workaround by the Treasury for calculating the index that underpins the $2.1 trillion market for Treasury Inflation-Protected Securities (TIPS) for the first time since their inception in 1997 [1][2][6] Group 1: Impact of Government Shutdown - The Bureau of Labor Statistics has ceased all data collection and publishing during the shutdown, except for the September Consumer Price Index (CPI) [2] - The ongoing government standoff is now the second-longest on record, with the White House indicating that no inflation data will be published next month, affecting the scheduled release of the October CPI report [2] Group 2: TIPS Market Implications - The value of TIPS is directly linked to the CPI index, which determines the principal amount that adjusts with inflation [3] - Recent increases in TIPS yields, or "real yields," may reflect market uncertainty due to the absence of CPI data, as yields rise when bond prices fall [4][5] - A high risk premium in TIPS is noted, leading to cheaper trading conditions for these securities [5] Group 3: Treasury's Workaround Plan - The Treasury has a contingency plan to produce a fallback index based on the last available 12-month change in the CPI if the October CPI is not reported by the end of November [6] - This would mark the first time the fallback index is utilized since TIPS were launched [6] - Current yields on 10-year TIPS are around 1.7%, with five-year yields slightly higher at 1.249% [7]