Arends' article was quite critical of anyone who would buy short-term TIPS. Below are some choice quotes from the article:
- "The only possible scenario in which any of these short-term TIPS bonds can avoid a loss is if we get persistent price deflation."
- "Some investment losses are unavoidable, but not this one. This one is a lock."
- "But why are people buying short-term TIPS bonds that will actually lose them money? I suspect you can blame the usual Wall Street culprits, like investor ignorance, unscrupulous brokers, and of course, the 'dumb money.'"
Making matters worse, if you invested in longer-term TIPS your return was even higher. The PIMCO Broad US TIPS ETF (TIPZ) that has an average maturity of about 10 years returned 7.4 percent from May 6-August 19. The PIMCO 15+ Year ETF (LTPZ) returned 16.1 percent over the timeframe.
The point I made back in October still holds: you can't simply look at TIPS yields in isolation. You need to compare TIPS yields to nominal Treasury yields of the same maturity. If you make this comparison, you would notice that the breakeven inflation rate hasn't changed much in the past year.
More on MoneyWatch:
Why Buying Money-Losing Investments Can Be a Good Strategy Why the Concern Over Negative TIPS Yields Is Overblown How to Build a Diversified Portfolio GNMAs: You Can Do Better This Time, It Actually Is Different
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