Analysis: TiPs Do Not Hedge Inflation as Advertised

You’re better off buying Stocks and Gold

TL/DR

TiPS performance will continue to be dictated more by Treasury market dynamics than inflation itself. For holders of TiPS to replicate what banks can do (see attached cartoon) multiple factors must be hedged and re-hedged.

TiPS, like most “products” offer imperfect hedging convenience. You’re better off buying Gold and some Stocks to hedge inflation. The math has been done

Contents (890 words)

1. The Limits of TIPS as an Inflation Hedge

2. Interest Rate Sensitivity Undermines Inflation Protection

3. Inflation-Linked Returns Overwhelmed by Rising Yields

4. TIPS ETF Demand Has Moderated

5. Breakeven Inflation Rates Offer a Better Hedge

6. Challenges for Individual Investors

7. Short-Term TIPS Breakevens Resemble Trading Oil

8. Conclusion: TIPS Require Contextual Hedging

9. Side by Side: TiPS ETF vs Gold