Some fear that record government borrowing could induce a period of high inflation and that bonds ultimately may not be worth as much as they used to be. However, Treasury inflation-protected securities (TIPS) and related exchange traded funds (ETFs) may be a way to protect your wealth.
TIPS can be one way to stave off the devaluation on borrowed money that comes from inflation, according to Steve Chiotakis for Marketplace. TIPs are bonds that have an increase or decrease in its principal based on the Consumer Price Index.
Reporter Jeremy Hobson says the Treasury Department will be announcing a boost in sales of TIPS.
TIPS have been gaining more attention after a series of weak Treasury auctions that have been followed by successful TIPS auctions. China has also been complaining about the effects of inflation in the United States, and their government is interested in buying more TIPS to protect themselves. As a result, the Treasury department will boost the sale of the bonds, say Rob Copeland and Maya Jackson Randall for The Wall Street Journal.
TIPs may be beneficial for investors after the U.S. government’s borrowing spree, but it may not be so great for the taxpayer. One strategist calculated that without inflation, 10-year TIPS are yielding 1.82%, whereas the 10-year Treasury is yielding 3.75%.
- iShares Barclays TIPS Bond (TIP): up 3.2% year-to-date; yield is 4.4%
For more information on Treasury inflation-protected securities, visit our TIPs category.
For full disclosure, Tom Lydon’s clients own shares of TIP.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.