Treasury Inflation-Protected Securities

U.S. inflation rose 0.5% in May; annual rate hits 4.2%, highest in three years

Posted on June 10, 2026 by Tipswatch

By David Enna, Tipswatch.com

While the news was expected, the May inflation report issued today by the Bureau of Labor Statistics is disturbing: U.S. all-items inflation rose 0.5% for the month on a seasonally-adjusted basis, rising to an annual rate of 4.2%, the highest since April 2023.

Core inflation, which strips out food and energy, was a bit tamer with a rise of 0.2% for the month and 2.9% for the year, up from 2.8% in April. The monthly core rate was below expectations — the one sliver of good news this morning.

In just over three months since the beginning of the Iran conflict, U.S. annual inflation has increased from 2.4% in February to 4.2% in May. The rate of increase may ease going forward, but U.S. inflation is likely to linger above 4.0% for many months.

The BLS noted that the energy index rose 3.9% in May, accounting for about 60% of the increase in all-items inflation. Gasoline prices were up 7.0% in May and are now up 40.5% over the last 12 months. Also from the report:

Food at home prices rose a moderate 0.1% for the month and are now up 2.7% for the year. These costs could rise as higher transportation costs are passed through.
Beef prices fell 1.6% for the month, but are up 12.9% for the year.
Egg prices rose a surprising 4.0% for the month but are down 35.2% for the year.
Shelter costs rose 0.3% for the month and 3.4% for the year.
Apparel prices rose 0.3% for the month and 4.8% for the year.
Airline fares rose 2.7% for the month and are now up 26.7% for the year.
Costs for new vehicles fell 0.3% in May and are up only 0.2% for the year.
Prices for used vehicles rose 0.1% for the month and were down 0.2% for the year.

The report shows the huge effect gasoline prices are having on U.S. inflation, which could be causing some deflationary pressures for other categories as consumers deal with higher commuting costs. The gas-price effect could ease if the conflict with Iran is resolved, but benefits could be many months away.

Meanwhile, inflation expectations will be rising, a dangerous trend. Here is the 12-month trend for all-items and core inflation, showing the burst higher since the war began on Feb. 28. Notice, however, that core inflation continues to inch higher even without the effect of higher gas prices.

What this means for TIPS and I Bonds

Investors in Treasury Inflation-Protected Securities and Series I Savings Bonds are also interested in non-seasonally-adjusted inflation, which is used to adjust principal balances on TIPS and set future interest rates for I Bonds.

The BLS set May’s CPI index at 335.123, an increase of 0.63% for the month, following an increase of 0.85% in April. These increases are higher than “headline” inflation because of the effects of seasonal adjustments. Later in the year, this trend will reverse.

For TIPS. The May report means principal balances for all TIPS will increase 0.63% in July, after rising 0.85% in June. Over the last year, principal balances will have increased 4.2% at the end of July. Here are the new July Inflation Indexes for all TIPS.

For I Bonds. The May report was the second of a six-month string that will determine the I Bond’s new variable rate, to be reset November 1 based on inflation for the months of April to September. So far, after just two months, inflation has increased 1.49%, which translates to a variable rate of 2.98%. But there are four months left to go. Prediction: I Bonds are going to get very popular later this year.

See historical data on my Inflation and I Bonds page.

What this means for future interest rates

Here is a key point: The U.S. inflation rate at 4.2% is now well above the effective Federal Funds rate of 3.61%. This can’t be tolerated for long. So either inflation needs to start trending lower, or the Federal Reserve will have to signal the possibility of higher rates.

This is complex. Gas prices could be causing a “transitory” spike, and actually causing some deflation in other economic areas. It will take time to see the end result.

The Fed’s Open Market Committee will meet next week under the leadership of new Chairman Kevin Warsh. Prediction: the Fed will stand pat on rates, but will need to signal that rate increases are under consideration. Warsh will be walking a tightrope.

On the positive side, core inflation has not yet surged higher. That would be a dangerous trend. From Bloomberg Economics this morning:

Overall, the CPI report sent a clear signal that consumers are pulling back on nonessential spending, pushing back against business attempt at price hikes. This should ease fears of Fed rate hikes following the blowout May payrolls report. We still expect policymakers to cut rates by 25 basis points in the fourth quarter of the year.

This is from Olu Sonola, head of U.S. economics at Fitch Ratings:

Headline inflation is hot — and getting hotter — an unwelcome handoff as the new Fed Chair takes the wheel. But this is not yet a panic-hike story. Core inflation remains relatively contained, giving the Fed room to stay on hold for a while longer. The burden now falls on the next few core readings and inflation-expectations data: if they stay contained, the Fed can look through the headline heat; if they crack, the rate-hike debate moves front and center.

From Seema Shah, chief global strategist for Principal Asset Management:

Inflation remains uncomfortably high at 4%, but the softer-than-expected core reading takes some of the pressure off. With energy driving much of the increase and shelter easing, we’re not yet seeing clear sign of broader second-round effects. This should allow the Fed to remain patient.

From this analysis, and because of the political pressures involved, I think we won’t see any change in the federal funds rate for several months. Longer-term interest rates could continue rising, however.

—————————

Donate? This site is free and I hope to keep it that way. Some readers have suggested having a way to contribute. I welcome donations, any amount. And FYI, ads on this site pay for about one visit to Costco.

PayPal link / Venmo link

—————————

Follow Tipswatch on X for updates on daily Treasury auctions and real yield trends (when I am not traveling).

Feel free to post comments or questions below. If it is your first-ever comment, it will have to wait for moderation. After that, your comments will automatically appear. Please stay on topic and avoid political tirades. NOTE: Comment threads can only be three responses deep. If you see that you cannot respond, create a new comment and reference the topic.

David Enna is a financial journalist, not a financial adviser. He is not selling or profiting from any investment discussed. I Bonds and TIPS are not “get rich” investments; they are best used for capital preservation and inflation protection. They can be purchased through the Treasury or other providers without fees, commissions or carrying charges. Please do your own research before investing.

Posted in Federal Reserve, I Bond, Inflation, Investing in TIPS, Savings Bond | Tagged investing, personal-finance, Treasury investments | 11 Comments

Academic study: I Bonds out-perform high-yield savings accounts

Posted on June 7, 2026 by Tipswatch

By David Enna, Tipswatch.com

A new research paper by a Marquette University professor found that Series I Savings Bonds created annual returns substantially higher than high-yield savings accounts (HYSAs) between 1999 and April 2026.

The emeritus professor, Dr. David Krause, is the founding director of the university’s Applied Investment Management program. His academic focus encompasses investments, economics, statistics, and financial technology.

Krause’s paper is titled “High-Yield Savings Accounts vs. Series I Bonds: Which Is Better for Beating Inflation?” You can download a .pdf version here. This is from the abstract:

The historical analysis reveals that I Bonds delivered an average annualized real return of positive 0.83% over the 27 year sample period, while HYSAs delivered a negative 0.91% real return. …

I conclude that for investors with a holding period of at least one year, I Bonds offer a superior structural hedge against inflation compared to HYSAs. The $10,000 annual purchase limit remains the primary constraint for larger portfolios.

Krause notes that as of April 2026, U.S. inflation was running at 3.8%, but the national average interest rate on a standard savings account was just 0.38%. In response, many savers are turning to I Bonds and HYSAs to safely boost returns.

What is an HYSA? High Yield Savings Accounts are deposit accounts offered primarily by online banks and credit unions, Krause notes. They provide significantly higher annual percentage yields than savings accounts at traditional banks.

The Federal Reserve does not track HYSA rates, and data for years past are slim, so Krause created a “proxy” using an adjustment to the 1-year Treasury bill rate, currently 3.88%. Compare that to best-in-nation HYSAs at around 4.0%. Ken Tumin, who tracks savings yields on this site, posted this chart recently on X.com:

These best-in-nation yields are unusual, however, and note the declines from recent highs. A credit union where I have an account currently offers an HYSA with a yield of 3.2%. Similar products are Vanguard’s Cash Plus account at 3.35% or Fidelity’s Cash Management account with a money market fund yielding 3.29%. Tumin has noted:

Series I Savings Bonds can be useful for emergency funds. They’re as safe as HYSAs, they keep up with inflation, and you can defer federal income tax until you sell. They’re best used to supplement HYSAs since you can’t access them in the first year and there’s a purchase limit.
— Ken Tumin (@KenTumin) May 18, 2026

Krause writes:

As of May 2026, top tier HYSAs offer APYs between 4.0% and 4.1%. However, these rates are variable and change at the discretion of the issuing institution. Unlike I Bonds, HYSA rates have no direct contractual link to inflation. They may fall even as inflation rises, a phenomenon observed during the 1970s and again during the post 2008 period. …

My central finding is that while HYSAs offer superior liquidity, I Bonds provide a superior structural hedge against inflation.

Here is a key illustration from the Krause study, showing a comparison of above-inflation returns for I Bonds versus HYSAs:

Blue line shows I Bond real return. Orange line shows HYSA real return. Horizontal black line at zero indicates breakeven. Red shading indicates periods of negative real returns for HYSAs.

Krause’s research showed that I Bonds offered substantially better returns — and better protection against inflation — than HYSAs over the 27-year period.

I Bonds delivered positive real returns in 239 of 310 months, which represents 77.1% of the sample period. The average annualized real return was positive 0.83%. Even during challenging periods such as the 2008 financial crisis and the 2022 inflation spike, I Bonds maintained positive or only slightly negative real returns due to their inflation linked variable rate and the principal floor.

HYSAs delivered positive real returns in only 99 of 310 months, which represents just 31.9% of the sample period. The average annualized real return was negative 0.91%. HYSA real returns turned negative during every significant inflation acceleration. These periods included 2000 to 2001, 2005 to 2006, 2008 briefly, 2011, and most dramatically in 2021 to 2023. At the trough of the 2022 inflation spike, HYSA real returns fell to negative 0.61% on a monthly basis.

And here is another important illustration from the study:

Blue line shows I Bonds growing to $12,363 in real dollars by April 2026. Orange line shows HYSAs declining to $7,884 in real dollars, losing value versus inflation.

Keep in mind that the chart shows the effect of inflation on purchasing power, so these are inflation-adjusted returns, not nominal returns. Krause points out:

In nominal or non-inflation adjusted terms, both investments grew. However, inflation eroded the HYSA purchasing power below its initial level. The I Bond, by contrast, preserved and modestly enhanced purchasing power despite two severe inflation shocks in 2008 and 2022 and a prolonged period of near zero interest rates from 2010 to 2021.

Liquidity and Penalty Considerations

Krause looked at the early-withdrawal penalty for I Bonds and found that early redemption substantially reduced the one-year real return, down to 0.19% versus 0.87% for current I Bonds held five years.

This finding suggests that I Bonds are best suited for funds that can be committed for at least two to three years. For true emergency funds requiring immediate access, a HYSA may be more appropriate despite its lower expected return.

Conclusion

As noted in the comments section, Krause’s proxy for past HYSA yields seems to underestimate top-of-market yields and instead tracks closer to “more typical” yields offered online and at banks and credit unions. But I think his conclusions are sound.

Krause notes that “I Bonds have historically provided superior inflation protection compared to HYSAs.” That trend, Krause believes, will continue into future years:

This advantage is projected to continue based on forward looking scenario analysis. The mechanism is clear. I Bonds have a direct contractual link to the Consumer Price Index through their variable rate. HYSAs depend on the monetary policy transmission mechanism, which introduces lags and uncertainty.

The fixed rate component of I Bonds is particularly valuable. Currently at 0.90%, it guarantees a positive real return regardless of inflation before accounting for taxes. HYSAs offer no such guarantee.

I Bonds versus 4-week T-bills

I am definitely not an academic researcher, but I did get a small mention in Krause’s paper. In my case, I have been tracking the performance of the I Bond’s variable rate (minus any fixed-rate adjustment) versus the returns of 4-week Treasury bills.

The pure variable-rate yield is reflected in I Bonds with a 0.0% fixed rate. Those aren’t highly attractive these days, with the fixed rate now set at 0.9% and looking likely to rise higher at the November 1 reset.

Here is how this performance stacks up, looking ONLY at the I Bond’s variable rate versus the then-current 4-week T-bill yield.

Even without the effect of any fixed rate, I Bond yields on average have surpassed both 4-week T-bill yields and the U.S. inflation rate since 2011. Why did this happen? Because for many years after 2011 the Federal Reserve held short-term interest rates well below the U.S. inflation rate (a trend that has now returned). The April 2026 inflation rate of 3.8% is shown in the chart, and May’s annual rate is expected to be higher. We will get the May 2026 report Wednesday morning.

Add in the fixed rate, and obviously the performance becomes much better. For example, the current six-month composite rate is 4.26%, much better than the 4-week’s nominal yield of 3.71%. Here is a chart generated by Claude AI that compares the I Bond’s composite rate versus the top HYSA rate over the last 20 years:

This was my query to Claude: “How do returns of Series I savings bonds compare with HYSAs over the last 20 years?” There are times of I Bond under-performance, but those are minimal compared to strong out-performance by I Bonds during inflationary surges. This was Claude’s closing commentary:

I bonds have been a better deal in high-inflation environments (2021–2022) and when the Fed keeps rates near zero. HYSAs shine when the Fed is in a tightening cycle and inflation is cooling. Right now they’re close enough that the decision really comes down to whether you need the liquidity.

Final thoughts

I Bonds purchased today offer the advantage of a guaranteed 0.9% return above U.S. inflation, for as long as you hold the bond. High-yield savings accounts could surpass inflation, but there is no guarantee. And the interest rate could fall if market trends send short-term rates lower.

There is a use for both investments. I Bonds work well for holdings of five years or longer and T-bills and HYSAs for short-term cash needs. Krause notes:

For the retail investor asking which is better for beating inflation, the historical and forecast evidence points clearly to Series I Savings Bonds.

• Confused by I Bonds? Read my Q&A on I Bonds

• Let’s ‘try’ to clarify how an I Bond’s interest is calculated

• Inflation and I Bonds: Track the variable rate changes

• I Bonds: Here’s a simple way to track current value

• I Bond Manifesto: How this investment can work as an emergency fund

—————————

PayPal link / Venmo link

—————————

Follow Tipswatch on X for updates on daily Treasury auctions and real yield trends (when I am not traveling).

Posted in Cash alternatives, Federal Reserve, I Bond, Inflation, Retirement, Savings Bond, Treasury Bills | Tagged investing, personal-finance, Treasury investments | 35 Comments

TIPS values exist in a multiverse: What’s the correct reality?

Posted on May 31, 2026 by Tipswatch

AI image for “money in the multiverse.” Perchance.org

By David Enna, Tipswatch.com

Many of us here are strongly committed to holding investments in Treasury Inflation-Protected Securities to maturity. That means trading is not an issue, despite the temptations. It also means the “current market value” of a TIPS becomes a bit irrelevant.

So this opens a topic for debate: Which TIPS value should you follow more closely — current adjusted principal or current market value? This is a dilemma I wrote about last year in this post: The unique serenity of holding TIPS at TreasuryDirect.

A reader brought this back to my mind last week with this question:

I have a challenging time putting a proper “current value” on my TIPS ladder holdings. … I hold all my bonds to maturity. There-in lies the problem, when I go to make my semi-annual spreadsheet. Fidelity shows a value that marks-to-market daily each holding. Since I’m a “hold to maturity” only investor, that valuation doesn’t represent the value to me of that holding.

I think a proper “hold to maturity” current valuation to me is the current inflation adjusted principal. Is this a good “current value” accounting for a “hold to maturity” investor?

That sums it up perfectly. TreasuryDirect shows only one valuation for TIPS: par value x inflation index as of the last coupon payment. This provides an update on the growing amount you will receive when the TIPS matures. It is a legitimate view of value. Key point: TreasuryDirect does not allow tax-deferred accounts and you can’t sell your TIPS on that platform.

Your brokerage account shows market value, which rises and falls with changes in real yields, along with daily inflation accruals. This is also a legitimate view of value, and is crucial for determining RMDs if you are holding TIPS in a tax-deferred account. Also, since you can sell a TIPS at a brokerage, market value shows the potential value for a sale.

At this point, because longer-term TIPS real yields are at 15-year highs, market values for most TIPS are well below accrued principal. The difference is rather stunning for a multi-year ladder of TIPS, as shown in this example:

Keep in mind that as a TIPS nears maturity, market value becomes less and less relevant. It disappears at maturity and the final pay-out is: par value x inflation index, plus one last coupon payment.

The chart shows a simple way to calculate current principal using Excel. You just need to know par value and the current inflation index, which gets updated daily on this Wall Street Journal page, outside the paywall.

The chart also demonstrates why June 2026 is an excellent time to build a long-term ladder of TIPS. You can grab a lot of accrued principal at a discounted price. The negatives are: 1) the principal above par is not protected against deflation (a minor risk) and 2) the cash flow from coupon income won’t be stellar.

At Tipsladder.com, you can run through ladder scenarios. Right now, according to the site, you can build a 30-year ladder with a composite real yield of 2.50% and a safe withdrawal rate of 4.7%.

I Bonds? Not an issue

Series I Savings Bonds can never go down in value and cannot be traded on the secondary market. There is no “market value.” They have only one value to track: current adjusted principal, which changes on the first day of each month. TreasuryDirect will show you that current value, which you can also see using the Savings Bond Calculator or data from EyeBonds.info.

Correct answer?

As much as I would like to, I can’t ignore market value because most of my TIPS holdings are in a tax-deferred account subject to RMDs, which are based on market value at the end of the year. Also, your brokerage has to track market value because it changes daily, and some investors want to trade out of TIPS.

I am fine with seeing market value in the brokerage account. But I also keep an Excel spreadsheet showing the accrued principal for each TIPS, and I use that amount to balance out the years in my TIPS ladder. (I update the spreadsheet a few times a year.) The accrued principal will continue adjusting for inflation until maturity, so it does represent future inflation-adjusted cash flow.

Using the Excel method creates the illusion of a zero-duration bond with no interest-rate risk, similar to tracking an I Bond. Many Bogleheads freak out when I suggest this and yes, they are right. There is interest rate risk (or potential gain) if you want to trade out of TIPS.

Since I am not going to sell a TIPS before maturity, this is the multiverse reality I prefer.

Just to be clear, I am not a big fan of the multiverse trend in movies, especially Marvel movies, where it is way overused. But here is a multiverse treat, the closing credits theme from Loki season 1, episode 5, by the fantastic composer Natalie Holt. (She wrote different closing themes for every episode. Talk about multiverse!) This is one of my favorites of all time:

• Now is an ideal time to build a TIPS ladder

• Confused by TIPS? Read my Q&A on TIPS

• TIPS in depth: Understand the language

• TIPS on the secondary market: Things to consider

• TIPS investor: Don’t over-think the threat of deflation

• Upcoming schedule of TIPS auctions

—————————

PayPal link / Venmo link

—————————

Follow Tipswatch on X for updates on daily Treasury auctions and real yield trends (when I am not traveling).

Posted in Investing in TIPS, Retirement, TreasuryDirect | Tagged investing, personal-finance, Treasury investments | 36 Comments

iShares target-date TIPS ETFs are growing in appeal … and deserve a look

Posted on May 24, 2026 by Tipswatch

The newest fund, IBIM, holds just one TIPS, but will expand. I have cautions.

AI image for “money slipping away.” Perchance.org

By David Enna, Tipswatch.com

Blackrock’s iShares division in March launched a unique ETF holding just one bond: CUSIP 91282CPU9, a 10-year TIPS that matures in January 2036.

The formal name is the “iShares iBonds Oct 2036 Term TIPS ETF,” with the ticker IBIM. The goal: To track the performance of U.S. Treasury Inflation-Protected Securities maturing in 2036. Later this year IBIM will add a second TIPS, to be issued in July, and then add two more 5-year TIPS to be issued in April and October 2031.

This is the 11th currently existing ETF of this type, holding TIPS maturing in a certain year. Others, such as IBIA and IBIB, have now matured. I have been following these funds for several years, and as time passes, I am easing off my initial qualms: Too weird and too small to be successful.

I had questions: Who is the target market for an ETF that will be holding only two to six bonds until maturity? Why not just buy and hold the individual TIPS? Would these ETFs provide tax-reporting benefits in a taxable account? Are these ETFs targeted at customers of assets-under-management financial advisers (which would possibly increase the cost to investors)?

The iShares suite of defined-maturity TIPS funds currently offers maturities for 2026 to 2036. Ideally, you buy the ETF — intending to hold to maturity — and then after a defined period, it distributes all proceeds and closes down. You can download the prospectus for the new 2036 fund here and the fact sheet here.

iShares has said these ETFs are designed to “mature like a bond, trade like a stock.” These are useful ETFs, I think, especially for an investor looking to quickly build a diversified TIPS ladder out to 2036. These funds should closely track the performance of the underlying TIPS. Here is a comparison of data for each ETF, along with VTIP, Vanguard’s Short-Term TIPS fund, for comparison:

The expense ratios for the iShares ETFs are only 0.10%, higher than VTIP’s 0.03% but quite good for such small funds.

Analysis

These funds are designed to be held to maturity and the asset value will rise and fall with market trends through maturity, just like any other bond fund.

Because the expense ratio is just 0.10%, I really have no problem with using these funds as an alternative to buying individual TIPS. You could quickly build a ladder through 2036 in 15 to 30 minutes.

However, the limited span of maturities means these ETFs aren’t the total solution for building an inflation-protected ladder of investments to cover 20 to 30 years. I raised this point in an April interview with Jason Zweig of the Wall Street Journal. He wrote:

You could use them as a “bridge” to Social Security if you’ll be retiring within 10 years, says David Enna, editor of Tipswatch.com. They aren’t yet a complete solution if you want to protect your purchasing power for, say, the next 30 years.

The size and trading volumes of these funds have increased nicely over the last two years, but still remain small compared to VTIP, an ETF giant. I suspect the ETFs are attracting many investors working with financial advisers. TIPS are complicated, and these funds are much easier to grasp.

The ETF trades as stock, so there is no minimum investment required. The cost of one share of IBIM was $25.13 at the close on Thursday. However, investors could face some bid-ask issues for very large orders. (Note: For a buy order, make sure to place a limit order because of the low volume for these funds.)

Income and inflation accrual distributions

One of the advantages of owning a TIPS to maturity is that inflation accruals continue to build over time, increasing the amount of principal and also increasing the semi-annual coupon payment as the principal increases. An individual TIPS gets the benefit of compounding, even though the coupon is distributed twice a year.

But one of the disadvantages of a TIPS is that if held in a taxable account, those inflation accruals are subject to “phantom” federal income taxes in the current year, even though they are not paid out. Plus, if your account is at TreasuryDirect, you will face the “dreaded 1099-OID,” the cryptic form reporting your taxable accruals.

The ETF plus. These defined-maturity ETFs “fix” the OID issue because inflation accruals will be paid out in the current year, along with the coupon interest. (This is the same way traditional TIPS funds work). That distribution makes these iShares TIPS ETFs more attractive for holding in a taxable account, because it eliminates the phantom income problem.

I assume this also means your broker will provide a single 1099-DIV tax form covering both coupon payments and inflation accruals.

The ETF minus. Distributing the inflation accruals in the current year means that at maturity you will be receiving only the original par value and final coupon payment, since all the inflation accruals would have been distributed. Zweig noted this in his April article:

Like all TIPS mutual funds or ETFs, the iShares funds pay out the inflation adjustment as current income each year. With individual TIPS, the inflation adjustment builds over time as an increase in principal value that isn’t realized until maturity or sale. In either case, the adjustment is taxable outside a retirement account.

In essence, this means if you buy IBIM at around $25 a share this week, in 2036 you are going to get back about $25 at maturity, but you will have earned inflation accruals and coupon payments along the way.

To get the full benefits of compounding and true inflation protection you would need to reinvest all inflation-accrual distributions back into these TIPS ETFs or another similar product. That could be a problem because of the low trading volume. I don’t own these ETFs, but it appears that Fidelity and Schwab do allow reinvestments, and Vanguard … might.

I have gotten feedback from readers saying they have been able to reinvest the dividends in these low-volume funds. Beyond the cost of any bid-ask spread, that is great news. If anyone has further experience with buying these funds and/or reinvesting the dividends, please provide the information in the comments section.

Do you need cash flow? To recap, these ETFs offer a cash-flow solution if held in a taxable account, with coupon interest and inflation accruals being paid out (and taxable) each year. If you don’t need the cash flow and are going to reinvest the dividends, they would work better in a tax-deferred account.

Thoughts

I buy individual TIPS with the intention of holding to maturity, so I already own CUSIP 91282CPU9 maturing in January 2036. But I can see the appeal for investors looking for a simpler way to invest in TIPS, especially in a taxable account.

The expense ratio of 0.10% is very good, especially if you can make your trades commission-free. But I do warn against using these ETFs in an assets-under-management account, which could wipe out 1% or more of your annual earnings. And in fact, I suspect these ETFs may have been designed for AUM financial advisers who really don’t understand TIPS (a lot of them don’t).

In summary, these target-maturity ETFs are a good investment for cash flow, would work well in a taxable account, and I really have no problem with them.

A new PIMCO ETF

On April 6, the investment firm PIMCO launched a new-fangled inflation-tracking ETF dubbed PIMCO Inflation PLUS Active ETF (PCPI). The press release says:

PCPI aims to provide investors who are concerned about rising inflation with a more direct hedge, lower volatility and limited interest rate risk versus traditional Treasury Inflation Protected Securities, known as TIPS.

PCPI is designed to limit interest rate risk and add incremental return potential through active management. It seeks real returns by investing primarily in short-term TIPS and other inflation-linked securities, and by actively managing the portfolio as market and inflation conditions change.

Sigh. This new fund might be fine, but I grit my teeth at the term “active management.” We are talking about, at most, seven TIPS and Treasury holdings? The expense ratio is 0.25%, which is eight times higher than VTIP’s 0.03%. The duration is defined as “ultra low” at 0.5 years, versus 2.5 for VTIP.

This ETF has very little trading history and I really don’t understand the premise. When a company uses the term PLUS in the ETF name in capital letters, there is something going on. Here is the prospectus if you want to dive in.

The ETF’s assets currently total $55 million, versus $6.8 billion for VTIP. This ETF is too new to draw any conclusions, but I would definitely shy away from any fund this new, this small, and this unproven.

The IVOL lesson

Back in the fall of 2020, when I was still writing for SeekingAlpha, I was getting a lot of questions about a new ETF with a tongue-twisting title: the Quadratic Interest Rate Volatility and Inflation Hedge ETF. Its ticker: IVOL.

The ETF’s creator, Nancy Davis of Quadratic Capital, was hailed as an innovator for this fund. Barron’s named her one of its top 200 Women in Finance in March 2020. But for me, IVOL was never particularly attractive. It was very new, with just a year of trading history. It was a fixed-income fund with a 1% expense ratio and a complex hedging strategy I couldn’t understand.

IVOL was investing 85% of its assets in SCHP, Schwab’s U.S. TIPS ETF, my favorite full-maturity-spectrum TIPS fund. On top of that, it was overlaying hedging strategies that sought to benefit from interest rate volatility. (Sound the alarms.)

IVOL had a sensational year in 2020, with a total return of 14.6% versus SCHP’s 10.9%. Readers began telling me: “This strategy works!” But In 2021, as both short- and long-term interest rates stabilized at very low levels, IVOL under-performed its two TIPS fund competitors by a wide margin.

Here are the total return results for IVOL over the last 1-year, 3-year, and 5-year periods:

Instead of looking for “new-fangled” solutions, an investor could have done much better by investing in tried and true TIPS ETFs like VTIP and SCHP. IVOL has grossly under-performing one hugely important metric: U.S. inflation.

Conclusion

Beware of the “new thing.” I don’t think the newly launched PIMCO fund is trying to push the envelope, so it may actually do fine investing in very short-term TIPS. If it is successful, let’s hope the 0.25% expense ratio begins to decline.

On the other hand, the iShares target-date TIPS ETFs have earned a look for investors who need a simplified way to buy TIPS.

• Now is an ideal time to build a TIPS ladder

• Confused by TIPS? Read my Q&A on TIPS

• TIPS in depth: Understand the language

• TIPS on the secondary market: Things to consider

• TIPS investor: Don’t over-think the threat of deflation

• Upcoming schedule of TIPS auctions

—————————

This image has an empty alt attribute; its file name is tips4-xmas-1.jpg

PayPal link / Venmo link

—————————

Follow Tipswatch on X for updates on daily Treasury auctions and real yield trends (when I am not traveling).

Posted in ETFs, Investing in TIPS, Retirement | Tagged inflation, investing, personal-finance, TIPS, Treasury investments | 60 Comments

10-year TIPS auction gets real yield of 2.169% to soft demand

Posted on May 21, 2026 by Tipswatch

By David Enna, Tipswatch.com

The Treasury’s offering of $19 billion in a reopening auction of a 10-year Treasury Inflation-Protected Security — CUSIP 91282CPU9 — generated a real yield to maturity of 2.169%, a bit above secondary market trading.

This is a 9-year, 8-month TIPS with a coupon rate of 1.875%, set at the originating auction on Jan. 22. It had been trading on the secondary market Thursday morning with a real yield to maturity of about 2.14%, and the “when issued” bond-market prediction was 2.15%. This indicates demand was a bit weak for this offering, even though the bid-to-cover ratio was a reasonable 2.52.

Definition: The “real yield to maturity” of a TIPS is its yield above future U.S. inflation, over the term of the TIPS. So a real yield of 2.169% means an investment in this TIPS would provide a return that exceeds official U.S. inflation by 2.169% for 9 years, 8 months.

Most likely, the real yield rose a bit higher because of market jitters over the U.S. stalemate with Iran, which has sent oil prices soaring. Iran reportedly is in talks on setting up a permanent toll for ships passing through the Strait of Hormuz, a position the U.S. opposes.

The result was a good one for investors. The real yield of 2.169% was near the top of the range for auctions since mid 2022, when real yields rose out of negative depths. At its originating auction in January, this TIPS got a real yield of 1.940%.

Here is the trend in the 10-year real yield over the last two years. While real yields have now climbed above 2.0%, they remain below highs of early 2025:

Pricing

Because the real yield came in well above the coupon rate of 1.875%, this TIPS auctioned at a discount, with an unadjusted price of 97.455252. It will also carry an inflation index of 1.01522 on the settlement date of May 29. With that information, we can calculate the cost of a $10,000 par value purchase at this auction:

Par value: $10,000.
Principal purchased on settlement date: $10,000 x 1.01522 = $10,152.20.
Cost of investment: $10,152.20 x 0.97455252 = $9,893.85.
+ accrued interest of $70.46.

In summary, an investor paid $9,893.85 for $10,152.20 of principal on the settlement date of May 29. From then on, the investor will earn accruals matching future inflation, plus an annual coupon rate of 1.875% on adjusted principal. The accrued interest will be returned at the first coupon payment on July 15.

Inflation breakeven rate

At the auction’s close, the 10-year Treasury note was trading with a nominal yield of 4.60%. That creates an inflation breakeven rate of 2.43% for this TIPS, the highest number since a similar auction in September 2022. A high inflation breakeven rate indicates a TIPS is “expensive” versus the nominal Treasury of the same term.

Investors were betting that U.S. inflation will exceed 2.43% over the next 9 years, 8 months. Over the last 10 years, inflation has averaged 3.4%.

Here is the trend in the 10-year inflation breakeven rate over the last two years, showing the recent surge higher in inflation expectations:

Thoughts

This was a good result for investors, with the real yield rising well above the most recent reopening of this term, 1.896% on March 19. But the fact that investor demand was lukewarm indicates the market fears higher real yields in the future.

Nevertheless, for an investor committed to holding to maturity, a real yield of 2.169% is attractive.

Interesting side note: Because non-seasonally-adjusted inflation surged 0.85% in April, holders of this TIPS will get a 0.85% boost to principal in June. The same goes for all TIPS, no matter when they were issued.

Here is the history over the last five years for TIPS auctions of this term. We’ve come a long way from the deeply negative real yields continuing through March 2022: