Inflation isn’t just isolated to the U.S. and could become a worldwide phenomenon where “hyperinflation” could be the ending result, according to Twitter co-founder Jack Dorsey.
There are already talks of stagflation — an economic condition marked by low economic growth and rising inflation — permeating in the capital markets. Hyperinflation would equate to runaway consumer price increases that would continue for a period of time.
Dorsey’s tweet comes as the consumer price index continues to climb. According to a CNBC article, “prices increased 5.4% versus the 5.3% estimate and just below a 30-year high.”
Hyperinflation is going to change everything. It’s happening.
— jack⚡️ (@jack) October 23, 2021
Of course, stagflation or hyperinflation wouldn’t do any favors for bond investors. As inflation increases, it eats away at fixed income, causing investors to either keep up or succumb to inflationary pressures.
Keep Pace With VTIP
Staying in lockstep with inflation can use the help of Treasury inflation-protected securities. If rates are going to rise in the near term, debt durations of less than five years can be susceptible, but ETFs like the Vanguard Short-Term Inflation-Protected Securities Index Fund ETF Shares (VTIP) can help.
VTIP seeks to track the Bloomberg U.S. Treasury Inflation-Protected Securities (TIPS) 0-5 Year Index performance. The index is a market capitalization-weighted index that includes all inflation-protected public obligations issued by the U.S. Treasury with remaining maturities of less than five years.
The manager attempts to replicate the target index by investing all, or substantially all, of its assets in the securities that make up the index, holding each security in approximately the same proportion as its weighting in the index.
- Seeks to track an index that measures the performance of inflation-protected public obligations of the U.S. Treasury that have a remaining maturity of less than five years.
- Designed to generate returns more closely correlated with realized inflation over the near term and offer investors the potential for less volatility of returns relative to a longer-duration TIPS fund.
- Given its shorter duration, the fund can have less real interest rate risk and lower total returns relative to a longer-duration TIPS fund.
- Invests in bonds backed by the full faith and credit of the federal government and whose principals are adjusted semiannually based on inflation.
- Can provide protection from inflationary surprises or ”unexpected inflation.”
For more news, information, and strategy, visit the Fixed Income Channel.