The largest exchange traded fund tracking TIPS rallied to a fresh record high Thursday with bond investors positioning for inflation as central banks continue monetary easing and stimulus measures.
The iShares Barclays Treasury Inflation Protected Securities Bond Fund (NYSEArca: TIP) has posted a total return of 8% this year and holds nearly $23 billion in assets.
TIPS are fixed-income securities with principal tied to changes in the Consumer Price Index. However, it’s important to remember that TIPS can still be hurt by rising yields like regular Treasury bonds. [TIPS ETFs: Inflation Protection Still Has Risks]
PIMCO Total Return ETF (NYSEArca: BOND) manager Bill Gross has been favoring inflation-protected bonds over long-dated Treasuries due to reflationary policies by governments and central banks.
Gross has recommended TIPS as yields on five-year U.S. Treasuries lagged the inflation rate by the most in six months, Bloomberg News reports. The PIMCO bond guru said investors should avoid longer-term Treasuries because policies to spur growth will boost costs in the economy.
“In the short term, bonds are a safe haven. In the long term, inflation is an invisible cost that not every investor can tolerate,” said Yoshiyuki Suzuki at Fukoku Mutual Life Insurance in the report.