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Why TIPS Failed

TIPS are Treasury Inflation Protected Securities. The name implies that purchasing these bonds provides a way to protect your money from inflation. Per the Treasury website: “As the name implies, TIPS are set up to protect you against inflation…The principal (called par value or face value) of a TIPS goes up with inflation and down with deflation.” A lot of people likely stopped reading there. However, TIPS are still bonds. So when interest rates go up, the value of the bond decreases. The crux of the failure in TIPS in 2022 was a double whammy: the inflation rate peaked along with an aggressive rate hike cycle by the U.S. Federal Reserve. Thus, the rate hikes eroded the bond value faster than inflation increased the value of the bond.
 

Is It Time to Buy GTIP?

The weekly chart below of the Goldman Sachs Access Inflation Protected USD Bond ETF (GTIP) shows how buying in anticipation of inflation made a lot of sense. Now, inflation is proving sticky, and in due time, with the backdrop of slowing growth, the Fed will be under increasing pressure to CUT rates. This stagflationary combination should provide a golden moment for TIPS.

(Click on image to enlarge)

With growth pressures ahead, the Fed is unlikely to hike rates anytime soon. This reality is an important backstop for GTIP. As soon as the Fed started to hike rates in 2022, GTIP topped out. GTIP plunged about 18% before it bottomed in 2022 and did not hit a final bottom until after the Fed’s last rate hike in July, 2023.

Note that GTIP has been on the rise in 2025. With a current yield of 3.5%, GTIP is “close enough” to many high yield savings accounts to make GTIP competitive alternative to cash for the conservative part of a portfolio. Even with tariffs creating a “one-time price adjustment higher” in prices, GTIP should get quite a boost in the coming year. Rate cuts from the Fed will provide an extra kicker. In other words, GTIP looks like a good investment option for the potential stagflationary environment to come. This TIPS instrument could even rival the return for stocks in the coming year or more.
 

Here Comes RBIL

The podcast “Talk Your Book” had an an excellent discussion on TIPS and potential alternatives to TIPS. In “A Better Money Market Fund“, F/m Investments explained why TIPS failed so spectacularly: “People ignored the fact that real yields can go up too…That real rate rise cannibalized any uptick you had in your inflation accrual…It was just typical bond risk.”

F/m Investments offered up the F/m Ultrashort Treasury Inflation-Protected Security (RBIL) as a an alternative to TIPS. Here is the case the company makes for RBIL (shown in graphical detail on the podcast site):

• A multiple bond portfolio consisting of TIPS maturing in a year which strips out rate duration risk and mainly leaves the principal appreciation from the inflation protection.
• Gives a modest coupon and the CPI appreciation
• Will protect purchasing power
• It is a better money market fund
• Avoids the tax complications of TIPS
• Provides the efficiency of an ETF

RBIL is definitely an interesting alternative to buy TIPS outright. But given RBIL just launched in late February, I prefer to buy GTIP for now, especially given my own inflation and rate expectations. In another year or so, I will check on the relative performance of GTIP vs RBIL and adjust as needed from there.
 

Tariffs Mean Inflation

F/m provided a simpleton’s guide to tariffs and inflation that serves as a summary to their short post on soaring inflation anxieties:

• When you hear tariffs, think inflation.
• When you hear tariffs are delayed or are coming sooner, you have to think more inflation.
• When someone tells you tariffs won’t cause inflation, you have to think Japan….or deep depression.
• We know all the outcomes from tariffs in the short-term will be inflationary – either because they’ve happened, or worse, the fear of coming tariffs drives the hoarding of goods and services which in turn drive short-term prices higher.

Case closed.

Be careful out there!

More By This Author:

Jerome Powell’s Fed Deftly Maneuvers Through A Stagflationary Minefield
Maximum Pressure For The Federal Reserve
The Sleight Of Hand Behind The ‘One-Time Adjustment’ And ‘Transitory’ Tariff Inflation Narrative