- Fixed-income investors are easing into Treasury inflation protected securities and bond-related ETFs
- Investors are shifting into TIPS assets as U.S. core PCE inflation rose 1.7% year-over-year in January
- With deflationary concerns at all time highs, contrarian investors may be turning to TIPS to get a head start on rising inflation
After deflation fears hit record highs, fixed-income investors are easing into Treasury inflation protected securities and bond-related exchange traded funds.
The higher U.S. core inflation and rise in oil prices are drawing more investors into TIPS. For instance, the iShares TIPS Bond ETF (NYSEArca: TIP), which tracks a group of U.S. TIPS from the Barclays U.S. Treasury Inflation Protected Securities Index (Series-L), has attracted almost $1.4 billion in net inflows so far this year, according to ETF.com.
Investors are shifting into TIPS assets as U.S. core PCE inflation rose 1.7% year-over-year in January, reports Luke Kawa for Bloomberg.
The New York Fed’s survey of consumers found expectations for inflation one year in the futures increased to 2.71% in February from 2.42% in January, Reuters reports.
After briefly falling out of favor in early 2016 as inflationary fears failed to pan out, with some like Goldman Sachs abandoning their call on inflation-linked sovereign debt, sentiment is shifting on rising oil prices, which have surged almost 50% off their recent lows.
“In a context where deflation fears were too strong and are now gradually normalizing, these inflows into inflation-protected bond funds clearly make sense, both in the U.S. and in Europe,” Alain Bokobza, Société Générale SA head of global asset allocation, said in a note.