What would you pay for inflation protection? Investors buying Treasury Inflation Protected Securities (TIPS) are now willing to pay as much as 0.37% annually for inflation protection. In other words, these investors are buying bonds that are guaranteed to lose money in real terms in order to protect their assets from inflation. Before you mock the idea, consider the alternatives. Nominal 5-year treasuries yield only 1.11%. Assuming inflation of 2%, that’s a negative .89% real return. In the treasury market these days, the winner is the investor who loses the least after inflation.
Jeremy Jones, CFA
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