Last week, yields on TIPS rose significantly, with the 10-year TIPS reaching 2.42% and the 30-year TIPS surpassing 2.97%, marking their highest levels since late 2023 and late 2008, respectively. This surge is attributed to rising oil prices following U.S. military actions against Iran, which have reignited inflation concerns among investors.
Collin Martin from Schwab noted that while TIPS can add value to a portfolio, particularly in the current inflationary environment, long-dated bonds carry substantial interest rate risk. TIPS provide interest income and their principal adjusts based on inflation, making them appealing when nominal yields approach equity returns.
However, investors should be cautious of the volatility associated with longer maturities. Matt Wrzesniewsky from Vanguard emphasized the importance of using TIPS as a small part of a diversified fixed income strategy, suggesting that investors consult with financial advisors to determine the appropriate allocation.
TIPS can be purchased directly from the U.S. government or through ETFs, with options like the Vanguard Short-Term Inflation-Protected Securities ETF offering a 30-day SEC yield of 2.02%