Demand for Treasury Inflation-Protected Securities is growing, especially from Asian investors, according to dealers who say they are receiving a material increase in the number of inquiries from non-U.S. investors.
In a recent survey, 29% of 130 Japanese investors polled said they would buy TIPS within the next two years, although only 19% of them currently invest in the asset class, according to data from a recent Barclays Capital event in Tokyo. While Japanese investors do not expect domestic inflation to rise soon, they will flood the TIPS market if inflation does grow, predicted Tim Peat, Barclays' global inflation-linked product coordinator.
Supporting the demand is the Treasury's commitment to growing the inflation-linked product's share of overall Treasury debt, with the re-addition of five-year and introduction of 20-year TIPS this year.
Merrill Lynch and Bear Stearns are among the dealers who report they have been receiving an increasing number of calls from overseas investors trying to better understand TIPS.
"I'd certainly see the central banks, as the biggest buyers of Treasuries, as showing increased interest in the asset class," said Richard Volpe, head of U.S. Treasury trading at Bear Stearns. He declined to speculate on when he thought demand might surge.
