U.S. investors turn to short-duration TIPS as inflation pressures erode cash holdings

Traders Union
All News
Financial News
Investors turn to short TIPS

Highlights

A Joint Economic Committee study reports American households paid an extra $4,200 since January 2025 due to tariffs and inflation linked to the war with Iran.
Short-duration TIPS real yields reached 2.5% as of Sept. 19, offering an expected nominal return of 5.5% if CPI inflation averages 3% over five years.
Short-term TIPS declined about 0.7% from Aug. 25 to Sept. 12, outperforming short-term Treasurys' 1.7% and long-term Treasurys' 2.6% drops over the same period.

Inflation hedge gains focus amid higher prices

As reported by Weiss Ratings, a new study from the Democratic staff of the congressional Joint Economic Committee says American households have paid an extra $4,200 since January 2025 because of tariffs, price increases linked to the war with Iran and other factors.

The commentary points to U.S. Bureau of Labor Statistics data showing that since President Donald Trump's second term begins in January 2025, prices for gasoline, restaurant meals and airline tickets are moving higher. It also notes that inflation pressure varies by state, with Texas and West Virginia seeing smaller increases than California and New York.

The piece says the congressional study is not nonpartisan because it comes from Democratic staff, but argues its conclusions are based on factual data. It also recalls Trump's campaign pledges to lower prices for groceries, cars, electricity and gasoline, contrasting those promises with more recent price movements.

Short-duration TIPS seen limiting rate risk

Weiss Ratings recommends short-duration TIPS as a store for "keep safe" money because the securities adjust principal with the Consumer Price Index and therefore help protect purchasing power against inflation.

As of Sept. 19, short-duration TIPS real yields are 2.5%, the commentary says. It gives an example that a five-year TIPS bought at that real yield would generate an expected nominal return of 5.5% if CPI inflation averages 3% over the holding period.

The note also says rising real interest rates are pressuring the broader Treasury market, with five-year real yields climbing from about 2.04% on Aug. 25 to 2.38% by Sept. 12. Still, it says short-term TIPS are holding up better than conventional Treasurys, falling about 0.7% over that stretch versus declines of 1.7% for short-term Treasurys and about 2.6% for long-term Treasurys.

Investors can buy individual TIPS through TreasuryDirect or via brokers, while exchange-traded fund access is also available through products such as Vanguard Short-Term Inflation-Protected Securities ETF, ticker VTIP. Weiss Ratings says the fund carries an expense ratio of 0.03% and a rating of C.

In our earlier coverage of Trump’s second-term backdrop of tariffs and the Iran war, we noted how those pressures were colliding with his promise to bring prices down while fiscal and geopolitical risks intensified. We also highlighted how the administration’s widening sanctions push on Iran was raising regional energy-security risks that can quickly spill over into markets and consumer costs.

This material may contain third-party opinions, none of the data and information on this webpage constitutes investment advice according to our Disclaimer. While we adhere to strict Editorial Integrity, this post may contain references to products from our partners.