Investors are maintaining their affinity for Treasury inflation-protected securities, or TIPS, betting that inflation will continue inching higher.
Investors will typically look at TIPS ahead of an inflationary period since buying TIPS after inflation has gone up means that the security has already priced in the inflation and investors would likely be overpaying for the TIPS exposure.
ETF investors can gain exposure to Treasury inflation protected securities through a number of options, including the iShares TIPS Bond ETF (NYSEArca: TIP), Schwab U.S. TIPS (NYSEArca: SCHP) and SPDR Barclays TIPS ETF (NYSEArca: IPE). TIP was one of the top ETFs last year in terms of new assets added.
Investor demand in a TIPS auction held Thursday was robust.
“The level of direct and indirect bidders was literally off the charts as it’s the most since these auctions began in 2003. Dealers were left with just 16% of the auction vs the average last year of 28%. As a result of the big demand, inflation expectations in the 10 yr breakeven is spiking by 6 bps to 2.09%, the highest since September 2014,” said Peter Boockvar of The Lindsey Group in a note posted by Amey Stone of Barron’s.