ETF Chart of the Day: Treasury Inflation-Protected Securities (TIPS)
March 19th 2012 at 3:30pm by Paul Weisbruch, Street One Financial
Last week’s steep sell-off in U.S. Treasury bonds as well as some other slices of the fixed income market including Investment Grade Corporates sparked some renewed interest in Treasury Inflation Protected Securities, or TIPS, products in
the ETF space.
The iShares Barclays TIPS Bond (NYSEArca: TIP) remains the giant in the space, having amassed more than $22 billion in assets under management since its inception in 2003.
The fund invests in investment grade TIPS bonds that have at least one year remaining to maturity, and $250 million or greater in outstanding face value. [ETF Chart of the Day: Treasury Bonds]
SPDR DB International Government Inflation Protected Bond (NYSEArca: WIP) is linked to TIPS in both developed and emerging markets economies outside of the U.S. and is up more than 5% year to date, second overall in return terms in the TIPS category on a year to date basis. [Treasury ETFs Feel the Heat]
Other funds in the category, which has matured notably in the sense that a variety of ETF products are now available to interested TIPS investors compared to just one or two years ago are PIMCO 1-5 Year U.S. TIPS (NYSEArca: STPZ), SPDR Barclays Capital TIPS (NYSEArca: IPE), Schwab U.S. TIPS (NYSEArca: SCHP), PIMCO 15 Year U.S. TIPS (NYSEArca: LTPZ), iShares Barclays 0-5 Year TIPS Bond (NYSEArca: STIP), FlexShares iBoxx 5-Year Target Duration TIPS (NYSEArca: TDTF), FlexShares iBoxx 3-Year Target Duration TIPS (NYSEArca: TDTT), PIMCO Broad U.S. TIPS (NYSEArca: TIPZ), iShares International Inflation Linked Bond (NYSEArca: ITIP), iShares Global Inflation Linked Bond (NYSEArca: GTIP) and ProShares UltraShort TIPS (NYSEArca: TPS).
TIPS offer the appeal of keeping pace with the rate of inflation based on the CPI (Consumer Price Index), through a semi-annual adjustment of the prices of the bond, so the investor can feel assured that not only will coupon payments be earned over time, but the principal upon maturity will be returned as expected as well via these adjustments. [Why TIPS ETFs Have Negative Yields]
However, TIPS investors must also be cognizant of the fact that along the way, the ride is not always smooth and subject to price volatility, so those not willing to tie up their cash for extended periods of time may be subject to selling at whatever the current price the TIPS bonds are trading at, which of course could be higher or lower than the original purchase price.
iShares Barclays TIPS Bond