Abstract
As inflation moderates at higher than optimal levels and real rates on 5-year Treasury inflation-protected securities (TIPS) are above 2 percent, TIPS become increasingly relevant. This column examines important issues associated with TIPS. Since TIPS are marked-to-market, their returns are much noisier than inflation bond returns. Clients can invest directly or indirectly in TIPS, and each has important advantages. Investors must be careful when comparing TIPS funds because reported yields sometimes include inflation and fund expenses (i;e., there is no uniformity among funds). Lastly, duration interpretation is a bit different for TIPS versus nominal bonds.