If real yields are up, do you want to own TIPS? This has been a difficult time to determine what should be done in the TIPS market. The story for TIPS was that the QE would push up expected inflation which would make these bonds attractive relative to nominal bonds. The implied inflation rate in TIPS versus nominal bonds is still very low, but there has been a movement up in real rates which makes these bonds less attractive. The short-term story for holding TIPS is negative when there are large output gaps but why are real rates starting to inch up. This could be normalization of credit markets or a funding problem. Hard to say there is strong value in this market.
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