FYI: When the traders and investors who advise the U.S. Treasury floated the idea of selling bonds indexed to inflation in health care and education, they were drawing on work that Nobel laureate Robert Shiller began a generation ago.
It’s also work that Michael Ashton, a money manager who specializes in hedging specific inflation risk, latched onto more than a decade ago. That’s when he and Shiller tried -- unsuccessfully -- to create an exchange-traded mechanism for hedging the medical-care component of the Consumer Price Index.
“Being able to trade subcomponents is the holy grail,” said Ashton, whose Twitter handle is @inflation_guy
. “Everybody has different exposure to inflation, a different experience of it. So one-size-fits-all eventually has to go away, because not everyone wants a black Model-T.”
Shiller, a Yale University economics professor, had been involved in the creation of a comparable product tied to oil prices and, later, launched one for single-family home prices. Both efforts ultimately failed, and the latest bond proposal may struggle to gain traction. Still, Ashton and Shiller say that hedging CPI components is a worthy idea whose time will come.