The concern is that investors bought TIPS for inflation protection without considering the rate risks.

“Despite its inflation protection, fluctuating interest rates still lead to volatility here,” according to a Morningstar analyst report on TIP.

“It is important to note that inflation is just one component of interest rates and that changes in the ‘real rate’ or the risk-free cost of capital will cause the value of TIPS to oscillate up or down just like Treasury bonds,” it said. “Because yields are near all-time lows, even if inflation expectations rise, TIPS bonds are still a low-return investment. Finally, if interest rates rise faster than inflation expectations, then TIPS will still lose value.”

TIP has an effective duration of about 8 years, according to BlackRock.

iShares Barclays TIPS Bond Fund

Full disclosure: Tom Lydon’s clients own TIP.