Inflation backdrop may soon increase appetite for this roughed-up bond play (via ETFEdgeCNBC)
, so their principal value is adjusted up when inflation rises. Despite major inflows in 2020, TIPS ETFs have been seeing meaningful outflows this year.
"What you're seeing in 2022, it's just a little bit of the pendulum swinging the other way," Tierney said. "Is inflation as big a concern right now moving forward as it was a year ago? Probably not. Investors might have made tactical allocations towards TIPS ETFs and maybe they're pulling that back a little bit.", which is down 16% so far this year. However, over the past two months it's up more than 2%.
However, VettaFi financial futurist and ETF expert Dave Nadig cautioned TIPS breakevens tend to be driven more by investor sentiment than reality. "TIPS are one of these things that are notoriously difficult for even really great traders to get right," he said. "The old adage is by the time you've decided to make a trade in TIPS either in or out, you're probably wrong.""We've had massive outflows in TIPS, but the breakeven on the 10-year TIPS is 2.3%, which means you have to believe inflation is going to average less than 2.3% to choose the straight Treasury over the 10-year TIPS," Nadig said.
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