The month of July saw the consumer price index rise 0.6%, which may make fixed income investors more aware of what inflation will do in the coming months. With that in mind, fixed income investors can use options to protect their return on bonds if inflation keeps ticking higher.

Per a CNBC report, “the consumer price index rose 0.6% in July and the gauged jumped 1% compared with a year ago. Economists surveyed by Dow Jones had expected a 0.3% increase in headline CPI for the month and a 0.8% gain for the year.”

“We think this reflects the pent-up demand from the stay-at-home consumers who were unleashed as many states reopened and stayed open,” Chris Rupkey, chief financial economist at MUFG, said in a note. “One month of too-hot core CPI inflation does not a trend make and we doubt the inflation genie has escaped her bottle.”

^SPASXGILB Chart

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TIP of the Iceberg

A fund to consider in times of rising inflation is the VanEck Vectors Investment Grade Floating Rate ETF (FLTR). FLTR seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the MVIS® US Investment Grade Floating Rate Index, which is comprised of U.S. dollar-denominated floating rate notes issued by corporate entities or similar commercial entities that are public reporting companies in the United States and rated investment grade.

Fixed-income investors using corporate bond ETFs are subject to duration risk tied to interest rates, but in an economic environment where inflation is also rising, an ETF like FLTR would be of benefit. Building off that point, another ETF to consider is the Goldman Sachs Access Inflation Protected USD Bond ETF (GTIP).

GTIP seeks to provide investment results that closely correspond to the performance of the FTSE Goldman Sachs Treasury Inflation Protected USD Bond Index. The index is designed to track the performance of inflation-protected, fixed rate U.S. Treasury Securities denominated in U.S. dollars (“USD”) that meet certain screening criteria.

Lastly, another fund to consider is the Vanguard Short-Term Inflation-Protected Securities Index Fund ETF Shares (VTIP). This ETF seeks to track the performance of the Bloomberg Barclays U.S. Treasury Inflation-Protected Securities (TIPS) 0-5 Year Index.

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 5 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.

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