WSJ article on TIPS - Investors Seek Inflation Haven In...

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SEPTEMBER 24, 2009 Investors Seek Inflation Haven In TIPS Funds But Treasury Securities Tied to Consumer Prices Carry Their Own Risks Article Comments (1) MORE IN MARKETS MAIN » Email Printer Friendly Share: facebook ↓ More o StumbleUpon o Digg o Twitter o Yahoo! Buzz o Fark o Reddit o LinkedIn o o MySpace Save This ↓ More Text By ANNELENA LOBB Rising fears of inflation are fueling an investor rush into mutual funds and exchange-traded funds holding Treasury inflation- protected securities. So far this year, more than $17 billion has poured into funds that invest in TIPS, government-issued bonds whose principal grows with rising inflation, according to estimates from research firm Morningstar Inc. That compares with estimated net cash inflows of almost $10 billion for 2008. Their popularity reflects worries that massive U.S. government spending will eventually lead to high inflation, which could erode the value of stocks and ordinary bonds. But if inflation stays at current low levels longer than some investors expect, TIPS may not add much juice to a portfolio—and could even drop in value. That said, many investors aren't in it for the yields, but for the protection they hope the bonds will provide if inflation suddenly surges. For now, TIPS buyers are brushing aside the prospect that the bonds won't do well if that much-feared inflation doesn't materialize. Indeed, many TIPS have been bid up to prices exceeding their face value. Total net assets for TIPS-focused mutual funds and ETFs were approximately $51 billion at the end of 2008. The mutual funds have gained an average 7.4% total return this year through Sept. 21, according to Morningstar. That showing, while nothing like the dizzying run-up in junk bonds, is much better than that of ordinary government bond funds, which have returned 2.6% so far this year.
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This note was uploaded on 11/06/2010 for the course ECON Econ taught by Professor Liasa during the Spring '10 term at University of San Francisco.

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WSJ article on TIPS - Investors Seek Inflation Haven In...

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