bond yields declined to almost zero in response to a sharp decline in industrial activity and credit demand. The second period commenced in 1982 and followed the decision of the Federal Reserve, chaired by Paul Volker, to slow and control money supply growth. In between, there was a 41-year period in which bonds generally produced negative real, after-tax returns. Forty-one years is a long time! This was a dismal period for bond investors. Market yields trended higher and culminated in the inflationary period of the 1970s. Many investors consider Treasury bills to be the safest of all investments. However, when adjusted for taxes and inflation, it is clear that Treasury bills can produce significant negative returns. Figure 30.4 shows the adjusted returns of Treasury bills over the same period of time. These returns were even worse than those of bonds. Treasury bills have no credit risk and little interest rate risk. However, they offer no hedge against unexpected inflation. During most of the past 76 years, a taxable investor holding Treasury bills would have suffered a decline in real wealth. In 1946, a Treasury bill investor would have lost 15 percent of his or her real wealth in just one year due to the postwar inflation. Over the 10 years ending at year-end 1982, a Treasury bill investor would have lost almost one-quarter of the real value of his or her principal. Because of the ever-present risk of inflation, investors should not consider Treasury bills or any other investment to be riskless. The U.S. Treasury introduced Treasury Inflation-Protected Securities (TIPS) in 1997. These are designed to provide a hedge against inflation. Like other Treasury FIGURE 30.4 Annual Real, After-Tax Treasury Bill Returns, 1926 through 2001 Source: Nominal and inflation data from Ibbotson Associates; tax adjustments by Goldman Sachs.