02.01.2012

Just The TIPS

02.01.2012

Since the last week of January, Treasuries have been on the rise as investors domestic and abroad take off the risk and put their capital in the world’s de facto safe haven. Yields have fallen considerably since January 25th as prices rose due to continued fears of the European debt crisis.

But Treasuries have been outperformed by their stepbrother of sorts: TIPS or Treasury Inflation-Protected Securities. TIPS adjust principal payment to coincide with inflation as weighted by the Consumer Price Index per the U.S. Treasury. For four years now, TIPS have outperformed their standard counterparts.

Demand has also risen considerably over the years for TIPS, with recent auctions setting records. As a result, the Treasury has said it will continue to offer new sales of TIPS to the public and institutional dealers to meet demand. Retail traders have exposed themselves to TIPS through exchange-traded funds as well; the iShares Barclays TIPS Bond Fund ETF (TIP) is up 2.3% year-to-date.

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