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.

Subscribe to our free daily newsletters!
Please enter your email address to subscribe to ETF Trends' newsletters featuring latest news and educational events.