In an article on Jan. 9, Wall Street Journal columnist Jason Zweig recommended that investors purchase more Treasury Inflation-Protected Securities (TIPS). That article, and Zweig’s recommendation, has resulted in a lot of questions from both clients and advisors. So I thought I would provide some analysis to help investors make that decision.
We’ll begin by comparing the return on 10-year TIPS to the return on 10-year nominal Treasurys. As I write this on Jan. 13, the yield on 10-year nominal Treasurys was at 1.89 percent, and the yield on 10-year TIPS was at 0.34 percent, which results in a breakeven inflation rate of just 1.55 percent. We can compare that to the current 10-year consensus forecast of inflation from the Federal Reserve Bank of Philadelphia’s Survey of Professional Economists, which is 2.2 percent.
Having a preference for TIPS is a no-brainer.
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