Summary
- Real yields are out of balance with historical norms. A 5-year TIPS is yielding only 13 basis points less than a 30-year TIPS.
- Are we heading toward a recession? Would TIPS mutual funds benefit? Possibly, if the Federal Reserves steps in. Or, would a deflation scare set in?
- The U.S. Treasury’s sharply increasing need to raise debt should force longer-term yields higher, sending TIPS funds lower.
One indicator I have watched for a long time is a price of $110 on the TIP ETF, which has marked a “buy signal” over the last seven years. Is that still valid?
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So if other countries are reducing their holdings of Treasuries to reduce dependence in the U.S. and are buying other…