Investors have been buying Treasury Inflation Protected Securities, or TIPS, in recent auctions even though the bonds offer negative yields, because they want to hedge inflation risks.
The Treasury Department sold $13 billion in 10-year Treasury Inflation Protected Securities last week — the second time 10-year TIPS have sold with a negative yield. “Investors still buy them because besides the coupon, TIPS pay the rate of inflation,” MarketWatch reported last week. [ETF Spotlight: TIPS]
When individuals invest in TIPS, the bonds’ principal is hitched to changes in the Consumer Price Index. [Why TIPS ETFs Have Negative Yields]
ETFs in the category include iShares Barclays TIPS Bond Fund (NYSEArca: TIP), PIMCO 1-5 Year TIPS (NYSEArca: STPZ), SPDR Barclays Capital TIPS (NYSEArca: IPE) and Schwab U.S. TIPS (NYSEArca: SCHP).
Yields on TIPS ETFs have moved higher recently along with yields on regular Treasury bonds.