“Unless inflation goes higher, then all you have with TIPS is interest rate risk, just like every other Treasury,” said noted bond fund manager Jeffrey Gundlach in a recent Bloomberg article. “It’s an asset class that is exposed to investor surprise and disappointment.”
Gundlach has also called TIPS a “disaster” and a “trap,” according to the report.
TIPS ETFs have been slammed by a decline in the so-called breakeven rate between TIPS and Treasuries.
This rate is calculated by comparing yields on TIPS to Treasuries of similar duration. If inflation averages more than the breakeven rate over a given time period, then investors would be better off owning TIPS than normal Treasury bonds.
However, a combination of rising Treasury yields and low inflation has caused a lot of pain for TIPS investors recently.
iShares TIPS Bond ETF
Full disclosure: Tom Lydon’s clients own TIP.