TIPS set for worst year ever

TIPS fared even worse than regular Treasurys in the bond market selloff this summer, and - down 8% YTD - are headed for their poorest performance since they were brought to market in 1997. The 10-year yield gap - the difference between 10-year yields on nominal and inflation-protected Treasurys, and a measure of inflation expectations - has shrunk to 2.14% from 2.5% at the start of the year.

TIPS owners for years have accepted negative real yields on the expectation the Fed's monetary ease would lead to higher inflation. With inflation still quiet and the Fed set to wind down its QE, where's a TIPS bull to turn to? 2014 may be even worse, says JPMorgan, which sees CPI no higher than 1.7%. Combined with what the team expects will be a 120 basis point rise in real yields, it translates into a 8.4% loss for TIPS.

Maybe bailing out TIPS next year would be a Yellen-led Fed indicating a greater tolerance for higher inflation and yet more delays in the taper.


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Comments (3)
  • Gary Jakacky
    , contributor
    Comments (2975) | Send Message
    TIP-ecanoe and deflation too! For any one who has been reading seeking alpha's Calafia Beach Pundit, this is old (profitable) news.
    29 Nov 2013, 12:51 PM Reply Like
  • DeepValueLover
    , contributor
    Comments (11388) | Send Message
    TIPS + Yellen = Losses.


    2 + 2 = 4.
    29 Nov 2013, 08:22 PM Reply Like
  • King Rat
    , contributor
    Comments (1902) | Send Message
    or 2 + 2 = 5 and you will learn to love it.
    Flour that used to be 5 pounds now comes in 4 pounds containers. 6 oz yogurt containers no hold 5.3. Housing prices in my home town have risen 15% year to date and rent is way up. Milk is up 6% this year, eggs 20%. Yet don't worry, inflation is 1.7%


    Former Anderson consultants and Enron management must now work for the government.
    30 Nov 2013, 03:12 AM Reply Like
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