Generally, investors don’t like shocks to the system. Sudden bad news can create plenty of volatility, drawdowns, and losses across a variety of asset classes. But when a risk or other data point is a long-lasting trend, they tend to work it into their models and calmly ignore it as fact. The stubbornness and persistence of inflation could be one of those points.
But that doesn’t mean that we should ignore it.
And in fact, we should be concerned about fighting it once again. As CPI data has started to increase and worries about inflationary pressure once again ramping up, Treasury inflation-protected securities (TIPS) remain a significant value. For investors, TIPS and their juicy real yields could be an excellent portfolio addition in the weeks ahead.
Inflation: Steady As She Goes
We all know the story. After the pandemic, the economic snap-back, coupled with consumers flushed with stimulus cash, low interest rates, and supply chain constraints, all conspired at the same time to send inflation over the edge. Inflation spiked in 2022 and 2023, hitting a whopping 9.1% in June of 2022. That was a rate not seen since the 1980s.
In response to that, the Federal Reserve did its job, raising interest rates to cool off the economy and reduce demand. In the two years that followed that peak consumer price index (CPI) figure, inflation has continued to drop.
Sort of. It dropped to a point. Since last summer, we’ve been treading water about inflation. Not making any real consistent headway lower, the CPI reading has been pretty flat, moving a tenth of a basis point, here or there. With this steady, persistent inflation, investors have begun to write it off and accept this as the new normal.
But as they have ignored, inflation has started to move the other way and grow.
The latest CPI report – released for June’s figures – shows that inflation has risen by 2.7% year-over-year. Excluding volatile food and energy prices, core inflation picked up 0.2% on the month and an annual rate of 2.9%. These annual rates are the highest since February of this year and are still above the Federal Reserve’s 2% target. 1
The worry is that the Trump Administration’s tariffs may finally be affecting inflation. Tariff-sensitive goods such as apparel and household furnishings saw big jumps during the month. The issue is that this is being combined with non-tariff-induced inflation and the results of a still-growing economy.
The overall analyst projection is that inflation hasn’t been whipped just yet, and now could be moving in the opposite direction.
Cheap Insurance
So, inflation hasn’t gone away and is starting to become an issue again. But because investors have been ignoring the problem and have worked that into their thinking, insurance to fight inflation has begun to be ignored.
When assets get ignored, they get cheap. That’s just the case with Treasury Inflation Protected Securities or TIPS.
Truth be told, TIPS are a funky bond and a lot of investors —and even financial advisors —don’t fully understand. That’s because they have a reset to their principal values based on changes to the CPI. A $1,000 TIPS with a 1% coupon under a flat CPI would pay $10 in interest. If the CPI jumps by 2%, the TIPS adjusts its principal upward by 2% to reach $1020, and the 1% in coupon against that would be $10.20 in interest. Complicating things further, TIPS trade on the secondary market, which changes their prices and yields.
The key to TIPS pricing is what’s called the “real yield.”
The real yield is the return after inflation or over inflation on a bond. A 10-year Treasury is called a nominal bond and will pay its 4% to 5% coupon no matter what. The real yield is that coupon minus inflation. Because of the CPI reset and changes to market values, TIPS generally beat inflation by a set amount. Typically, TIPS provide a real yield of around 1% to 1.5%.
At the end of July, the treasury conducted the largest TIPS auction- at $21 billion- and real yields clocked in at 1.985%. This chart from FRED shows the 10-year real yields of the TIPS since the surge and persistence of inflation.
Source: FRED
The win is that a real yield of 2% becomes a beautiful entry point for investors. By buying the TIPS, you are virtually guaranteed to generate a return that beats inflation by 2% or more for the next decade.
That’s a massive win for retirees and investors looking at liability planning. You can take away stock market risk, buy the tips, and be guaranteed the ability to beat inflation. Moreover, looking at so-called breakeven versus nominal treasury bonds, investors are beating around inflation, averaging 2.40%. That’s below the long-term historic average for inflation, and investors tend to be pretty bad at predicting future rates of inflation- undershooting actual figures.
Tackling TIPS
With real yields still strong and the potential for increased inflation due to tariffs and other economic woes growing, Treasury inflation-protected bonds are offering cheap insurance. While you won’t get rich buying TIPS, the wealth preservation aspect is a significant win.
And there are several ways to go about buying TIPS.
The individual TIPs market is large and liquid. Additionally, the Treasury offers several auctions- both new and reopenings- of these bonds throughout the year. Buying them directly is easy, either through Treasury Direct or a good brokerage account.
Additionally, given the size of the TIPS market, numerous ETFs and funds own these bonds. A key point to remember is that ETFs can be used to provide inflation protection, but not in the same way. TIPS ETFs constantly roll over their holdings to keep their mandates and, as such, are at the whims of market conditions, investor selling, and changes to interest rates. Where they win is during periods of sudden spikes of inflation. You won’t get the same constant, steady, inflation-protected cash flows as buying and holding an individual TIPS. But for many investors, this is an easy way to get inflation protection into their portfolios.
TIPS ETFs
These funds were selected based on their exposure to Treasury Inflation-Protected Securities (TIPS). They are sorted by their YTD total return, which ranges from 2% to 3.5%. They have expenses between 0.03% and 0.20% and assets under management between $727M and $52B. They are currently yielding between 2.4% and 4%.
| Ticker | Name | AUM | YTD Total Ret (%) | Yield (%) | Exp Ratio | Security Type | Actively Managed? |
|---|---|---|---|---|---|---|---|
| LTPZ | PIMCO 15+ Year U.S. TIPS Index Exchange-Traded Fund | $727M | 3.5% | 3.5% | 0.20% | ETF | No |
| DFIP | Dimensional Inflation-Protected Securities ETF | $797M | 2.8% | 3.7% | 0.12% | ETF | Yes |
| TIP | iShares TIPS Bond ETF | $15.5B | 2.7% | 2.44% | 0.19% | ETF | No |
| SCHP | Schwab U.S. TIPS ETF | $11.3B | 2.5% | 2.9% | 0.03% | ETF | No |
| TIPX | SPDR Bloomberg 1-10 Year TIPS ETF | $1.37B | 2.4% | 3.5% | 0.15% | ETF | No |
| TDTT | FlexShares iBoxx 3-Year Target Duration TIPS Index Fund | $1.9B | 2.3% | 4% | 0.19% | ETF | No |
| VTIP | Vanguard Short-Term Inflation-Protected Securities Index Fund | $51.8B | 2% | 2.65% | 0.03% | ETF | No |
All in all, investors have continued to ignore the elephant in the room. And that’s inflation. But as they’ve forgotten, TIPS have become cheap, offering strong real yields and a good breakeven point for investors. With that in mind, the bond should find its way into your portfolio.
Bottom Line
Right now, inflation is starting to grow. Insurance against this threat is cheap. Offering strong real yields, Treasury inflation-protected securities (TIPS) are a bargain in the fixed income market. For investors near or in retirement, they provide a great play to fight any future inflationary woes.
1 CNBC (July 2025). Inflation picks up again in June, rising at a 2.7% annual rate
