ETFs that invest in TIPS have been falling with nominal Treasuries as bond yields rise. The pullback in TIPS is a reminder that these inflation-indexed bonds can also be hurt by higher interest rates. [TIPS ETFs Fall with Treasury Bonds]
Still, PIMCO Total Return ETF (NYSEArca: BOND) manager Bill Gross on Twitter has been suggesting investors buy TIPS as central bank stimulus creates bubbles and distortions in all markets.
“Despite record-low real yields for [TIPS] that are causing apprehension and confusion among some investors, we remain as convinced as ever that TIPS still offer potential advantages over nominal Treasuries – especially in an environment where inflation will likely reach over 2% for the foreseeable future,” PIMCO said in an April 2012 commentary by Jeremie Banet and Mihir P. Worah.
“Investors have been buying TIPS in recent years for two reasons, say analysts,” Arends wrote in the WSJ.com story. “Some are looking for a better alternative for their short-term money than cash, which is earning almost 0%—and less than inflation. Others are looking for long-term protection against the risk of surging inflation.”
For TIPS ETF investors, the inflation “breakeven rate” is important to watch. It is determined by comparing the yields of regulator government bonds against inflation-protected securities of the same duration, usually 10 years. If inflation averages more than the breakeven rate over the next decade, then investors would be better off owning TIPS than normal Treasury bonds. [TIPS ETF Hits All-Time High]
Other TIPS ETFs include PIMCO 1-5 Year TIPS (NYSEArca: STPZ), SPDR Barclays Capital TIPS (NYSEArca: IPE) and Schwab U.S. TIPS (NYSEArca: SCHP).
iShares Barclays TIPS Bond Fund
Full disclosure: Tom Lydon’s clients own TIP and BOND.