International ETF investors may hedge against the rising inflation through the SPDR DB International Government Inflation-Protected Bond ETF (NYSEArca: WIP), which tries to reflect the performance of the DB Global Government ex-US inflation-linked Bond Capped Index. The fund pays a distribution based on income plus the inflation adjustment, holds bonds from 18 foreign countries, has around a 30% weighting in emerging markets where inflation is rising earlier and faster, and has a 56% weighting in European countries.
In the U.S., TIPS are designed to hedge inflation by linking the principal to the Consumer Price Index (CPI). The main thing to keep in mind with TIPS is that the bond principal value will go up if the CPI increases, but you don’t have access to that increase until you receive your adjusted principal value at maturity.
U.S. TIPS options include:
- iShares Barclays TIPS (NYSEArca: TIP)
- iShares Barclays 0-5 Year TIPS (NYSEArca: TIPS)
- PIMCO 1-5 Year U.S. TIPS (NYSEArca: STPZ)
- PIMCO 15+ Year U.S. TIPS Index Fund (NYSEArca: LTPZ)
- PIMCO Broad U.S. TIPS Index Fund (NYSEArca: TIPZ)
- Schwab U.S. TIPS (NYSEArca: SCHP)
- SPDR Barclays Capital TIPS ETF (NYSEArca: IPE)
The difference between yields on 10-year notes and TIPS was at its widest point since March 9, signaling traders are positing for higher inflation, Bloomberg reported this week. [Treasury ETFs Soft As Traders Await Fed Speeches.]
For more information on international sovereign debt, visit our international Treasury bonds category.
For full disclosure, Tom Lydon’s clients own TIP.
Max Chen contributed to this article.