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Hedges Against Inflation? Commodities, Gold and Inflation-Linked Bonds - JPM

Minuteman:

I had the same question, which I recently posed to iShares. Here is there reply, dated 2/24/09:

"With regard to your request, the TIP fund is closely tied to the Consumer Price Index for urban consumers (CPI-U). Specifically the fund tracks this indicator on a two month lag. This government indicator of inflation greatly influences our distributions for this fund. During inflationary periods the value of the underlying bonds appreciates and this appreciation is liquidated and then passed on to the investor as a distribution, as you may have noticed with the large distributions which occurred this summer. Currently, we are in a deflationary period and the November distribution reflects the CPI-U for the month of August which came out with a negative value. When CPI-U is negative the value of the underlying bonds will depreciate in value and this depreciation may offset the amount we have available to liquidate and distribute for that particular month. This was the case in the month of November 2008 through February 2009 and the reason why there was no distribution. As long as CPI-U continues indicating a deflationary environment, our TIP fund may continue to have a very low or even zero monthly distributions until we return to an inflationary period. The yields which appear on our website will give you an indicator of what has been distributed, but are not good indicators of what distributions will be going forward. A look at the CPI-U figures will give you a more accurate sentiment of the expected distribution, until CPI-U returns to a positive amount indicating inflation this fund may not distribute any cash flow."