Investors clearly feel that the need for inflation protection is paramount. Activity in one of the largest TIPS exchange traded funds (ETFs) this week nearly brought the fund to a record high.
John Spence for MarketWatch notes Wednesday’s activity, which pushed iShares Barclays TIPS (NYSEArca: TIP) close to highs not seen since March 2008. The fund is getting some life on a weaker dollar and record-high gold prices.
TIPS, or Treasury Inflation-Protected Securities, have been around only since 1997. Since then, inflation has been fairly tame.
According to ETF Market Pro, TIPS have a built-in feature that adjusts the principal of the bond based on changes in inflation. How likely is inflation right now? The government appears to be trying to keep it low – for now. [How to Cope With Deflation With ETFs.]
But with a growing debt-to-GDP level, now at 54%, inflation may become a real possibility. In a deflationary environment, use caution: TIPS can lose value. [ETFs In An Inflationary Environment.]
- PIMCO 1-5 Year U.S. TIPS (NYSEArca: STPZ)
- SPDR Barclays Capital TIPS (NYSEArca: IPE)
- PIMCO 15+ Year U.S. TIPS (NYSEArca: LTPZ)
- PIMCO Broad U.S. TIPS (NYSEArca: TIPZ)
- iShares Barclays TIPS (NYSEArca: TIP)
Tisha Guerrero 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.