The Treasury has made some statement that TIPS are a net positive ROI for the Treasury, although I don't exactly understand why.NiceUnparticularMan wrote: ↑Tue May 23, 2023 11:48 amTIPS in the US remain a small fraction of all outstanding Treasurys, and of course federal fiscal and monetary authority is not limited in nominal terms. So there is very little reason to believe the Treasury would ever be forced to reduce real TIPS rates for "cost" reasons.
In fact, particularly not in circumstances of unexpectedly high inflation where the "cost" to the Treasury of its much large outstanding nominal obligations would have gone way into negative real territory as a result. Not that such "costs" actually makes sense for a country with its own currency, but the Treasury could just direct a small portion of that "windfall" on nominal Treasurys to TIPS holders (who of course are not getting anything more in real terms than promised anyway), and "pocket" the rest.
It may have to do with being able to get away with paying less yield on nominals as a "safety buffer" for inflation protection, because people who really want inflation protection can just buy TIPS instead of seeking an extra margin of safety in nominal yield.