Lou Thomas

WIP and TIP: Better than Gold

U.S. Treasuries are widely acknowledged to be in a bubble. If one buys TIPS at a very low base interest rate, one will be exposed to that bubble, just as one is with non-TIPS treasuries, because when interest rates rise on Treasuries, the TIPS base rates will also rise, and the value of TIPS sold at lower base rates will decline, all other things being equal.

Increases in TIPS value due to inflation will help to offset this decline, but by how much? That would seem to depend upon the term of the TIPS bond purchased vs. the near-term effects of inflation.

So, TIPS have the same down side as regular treasuries, but have an up side as well if there is inflation. But the popping of the treasury bubble is probably a more certain thing than high inflation, given the dire economic situation, which holds many deflationary aspects.

Anyway, I'm no expert at all in this, but these are the thoughts that occur to me when reading your article.