The largest ETF indexed to Treasury Inflation Protected Securities is trading at an all-time high in the wake of the Federal Reserve’s third round of quantitative easing, or QE3.
The iShares Barclays TIPS Bond Fund (NYSEArca: TIP) is moving higher with inflation expectations on central bank easing measures.
“The Fed’s actions last Thursday have been widely seen as a fundamental shift in its monetary policy, and its communications with the public. The tone of the FOMC’s statement, and of the Chairman’s subsequent press conference, clearly gave much less weight to the control of inflation than usual, and much more weight to the need to achieve a substantial reduction in unemployment,” Gavyn Davies writes in a Financial Times blog post.
“Certainly, the latest round of quantitative easing is the first to have occurred with little or no threat of deflation in the offing, and markets have responded by raising inflation expectations significantly,” Davies said.
The income that TIPS produce is based on Treasury yields as well as changes in the Consumer Price Index. Investors use TIPS to hedge inflation and protect the purchasing power of their dollars.
Investors have been buying TIPS this year even though they have negative yields. [TIPS ETFs Rise After Bonds Sell at Record Negative Yield]