The TBAC did not break down the figures for the five-year issue. “This cost reflects the fact that realised inflation has been higher than expectations,” the TBAC members also said. With TIPS, both the principal and the interest rate track changes in inflation as measured by the Consumer Price Index — a difference the Treasury must foot. For instance, for a five-year TIPS maturing this summer, Treasury would have to pay for the difference between the current CPI running at 5.6 per cent versus its subdued 2.1 per cent pace at the time of issuance five years earlier.

“The committee is saying the higher CPI is costing the government more money, but it’s faulty analysis. The use of five-year TIPS has actually saved the government a lot of money by reducing full coupon financing,” said Zane Brown, partner and fixed-income strategist at Lord Abbett & Co.