ETFs following Treasury Inflation Protected Securities have hit a rough patch lately. Blame subdued inflation expectations and rising real yields.
For example, the Consumer Price Index fell 0.4% in April after slipping 0.2% in March. The so-called core CPI, which excludes food and energy, held steady with a slight 0.1% increase in April.
On Wednesday, investors will get inflation data for May, and the consensus core CPI forecast is a small 0.1% rise. [Plunging TIPS ETF]
The iShares TIPS Bond ETF (NYSEArca: TIP) is off more than 4% the past three months, while iShares 7-10 Year Treasury (NYSEArca: IEF) is unchanged. The TIPS fund is falling harder than the Treasury ETF of similar duration as investors scale back their inflation outlook. Speculation the Federal Reserve may taper its bond purchases is also having an impact. [TIPS ETF Down More Than Treasuries]
In fact, the yield on 10-year TIPS has flipped positive for the first time in over a year. Investors pulled more than $400 million from TIP last week.
“It’s a strange concept. People were writing a check to the U.S. Treasury for the privilege to own TIPS,” said Richard Gilhooly, an analyst with TD Securities, in a recent WSJ report. “Now, they are finally demanding some compensation.”
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