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Treasury Inflation-Protected Securities (“TIPS”) have been scaling new highs, buoyed by the renewed focus on inflation hedging amid the new administration’s tariff plans and potential shifts in interest rates. This is especially true as TIPS ETFs offer shelter against rising inflation.
Among the ETFs, PIMCO 1-5 Year US TIPS Index ETF (STPZ - Free Report) , FlexShares iBoxx 3-Year Target Duration TIPS Index Fund (TDTT - Free Report) , Vanguard Short-Term Inflation-Protected Securities ETF (VTIP - Free Report) , SPDR Bloomberg 1-10 Year TIPS ETF (TIPX - Free Report) and Invesco 0-5 Yr US TIPS ETF (PBTP - Free Report) hit new 52-week highs in the latest trading session.
After a period of declining inflation, recent data has signaled that price pressures remain sticky, prompting concerns that the Fed might take longer to cut rates. Inflation picked up in January, fueled by higher grocery, gasoline and rent prices. Consumers' 12-month inflation expectations deteriorated to 4.3%, the highest reading since November 2023, from 3.3% in January.
Over the next five years, consumers expect inflation to be 3.5%, the highest since 1995, compared with 3.2% in January, according to the latest survey. President Donald Trump’s tariff plan will further spark inflationary pressure, fueling demand for inflation-protected assets like TIPS (read: Inflation Picks Up in January: Dividend ETFs to Buy).
Why TIPS?
TIPS are government bonds whose face values rise with inflation. TIPS ETFs not only combat increasing prices but also protect income for the long term. To explain in detail, consider a fixed interest rate of 2.0% on five-year TIPS with an initial face value of $1,000. In the first six months, when inflation is zero, the semi-annual interest payment would be $10, but when inflation rises 5% annually in the next six months, the semi-annual interest rate would be $10.25 (1,025*2%-1/2 = 10.25).
This is because TIPS pay interest on inflated principal amounts (principal rises with inflation). In this case, the principal becomes $1,025 when the semi-annual inflation is accounted for. As a result, both principal amount and interest payments will rise with increasing consumer prices (see: all the Inflation-Protected Bond ETFs here).
Below, we have highlighted the details of the five ETFs.
PIMCO 1-5 Year US TIPS Index ETF seeks exposure to the shorter maturity subset of TIPS, which has historically had less interest rate risk, a higher correlation to inflation and lower volatility than a broad U.S. TIPS index. It follows the BofA Merrill Lynch 1-5 Year US Inflation-Linked Treasury Index, holding 30 securities in its basket. PIMCO 1-5 Year US TIPS Index ETF has an effective duration of 2.91 years and an average maturity of 3.03 years. It charges 20 bps in fees per year.
FlexShares iBoxx 3-Year Target Duration TIPS Index Fund (TDTT - Free Report)
FlexShares iBoxx 3-Year Target Duration TIPS Index Fund tracks the iBoxx 3-Year Target Duration TIPS Index and holds 25 securities in its basket. It has an adjusted duration of 2.77 years and an average maturity of 3.39 years. FlexShares iBoxx 3-Year Target Duration TIPS Index Fund charges 18 bps in annual fees and has an AUM of $15.4 billion (read: TIPS ETF (TDTT - Free Report) Hits New 52-Week High).
With an AUM of $13.1 billion, Vanguard Short-Term Inflation-Protected Securities ETF offers exposure to TIPS with a maturity of less than five years by tracking the Bloomberg U.S. TIPS 0-5 Year Index. Holding 26 securities in its basket, VTIP has an average duration of 2.5 years and an average maturity of 2.6 years. The fund charges 4 bps in annual fees.
SPDR Bloomberg 1-10 Year TIPS ETF offers exposure to TIPS with remaining maturities between 1 and 10 years, with an adjusted duration of 4.38 years and an average maturity of 4.63 years. It follows the Bloomberg 1-10 Year U.S Government Inflation-Linked Bond Index and holds 39 securities in its basket. TIPX has amassed $1.4 billion in its asset base and charges 15 bps in annual fees.
Invesco 0-5 Yr US TIPS ETF offers exposure to 27 US TIPS with a remaining maturity of at least one month and less than five years by tracking the ICE BofAML 0-5 Year US Inflation-Linked Treasury Index. It has an effective duration of 2.43 years and years to maturity of 2.53. Invesco 0-5 Yr US TIPS ETF has an AUM of $51.2 million and charges 7 bps in annual fees.
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TIPS ETFs Scale New Highs on Inflation Fears
Treasury Inflation-Protected Securities (“TIPS”) have been scaling new highs, buoyed by the renewed focus on inflation hedging amid the new administration’s tariff plans and potential shifts in interest rates. This is especially true as TIPS ETFs offer shelter against rising inflation.
Among the ETFs, PIMCO 1-5 Year US TIPS Index ETF (STPZ - Free Report) , FlexShares iBoxx 3-Year Target Duration TIPS Index Fund (TDTT - Free Report) , Vanguard Short-Term Inflation-Protected Securities ETF (VTIP - Free Report) , SPDR Bloomberg 1-10 Year TIPS ETF (TIPX - Free Report) and Invesco 0-5 Yr US TIPS ETF (PBTP - Free Report) hit new 52-week highs in the latest trading session.
After a period of declining inflation, recent data has signaled that price pressures remain sticky, prompting concerns that the Fed might take longer to cut rates. Inflation picked up in January, fueled by higher grocery, gasoline and rent prices. Consumers' 12-month inflation expectations deteriorated to 4.3%, the highest reading since November 2023, from 3.3% in January.
Over the next five years, consumers expect inflation to be 3.5%, the highest since 1995, compared with 3.2% in January, according to the latest survey. President Donald Trump’s tariff plan will further spark inflationary pressure, fueling demand for inflation-protected assets like TIPS (read: Inflation Picks Up in January: Dividend ETFs to Buy).
Why TIPS?
TIPS are government bonds whose face values rise with inflation. TIPS ETFs not only combat increasing prices but also protect income for the long term. To explain in detail, consider a fixed interest rate of 2.0% on five-year TIPS with an initial face value of $1,000. In the first six months, when inflation is zero, the semi-annual interest payment would be $10, but when inflation rises 5% annually in the next six months, the semi-annual interest rate would be $10.25 (1,025*2%-1/2 = 10.25).
This is because TIPS pay interest on inflated principal amounts (principal rises with inflation). In this case, the principal becomes $1,025 when the semi-annual inflation is accounted for. As a result, both principal amount and interest payments will rise with increasing consumer prices (see: all the Inflation-Protected Bond ETFs here).
Below, we have highlighted the details of the five ETFs.
PIMCO 1-5 Year US TIPS Index ETF (STPZ - Free Report)
PIMCO 1-5 Year US TIPS Index ETF seeks exposure to the shorter maturity subset of TIPS, which has historically had less interest rate risk, a higher correlation to inflation and lower volatility than a broad U.S. TIPS index. It follows the BofA Merrill Lynch 1-5 Year US Inflation-Linked Treasury Index, holding 30 securities in its basket. PIMCO 1-5 Year US TIPS Index ETF
has an effective duration of 2.91 years and an average maturity of 3.03 years. It charges 20 bps in fees per year.
FlexShares iBoxx 3-Year Target Duration TIPS Index Fund (TDTT - Free Report)
FlexShares iBoxx 3-Year Target Duration TIPS Index Fund tracks the iBoxx 3-Year Target Duration TIPS Index and holds 25 securities in its basket. It has an adjusted duration of 2.77 years and an average maturity of 3.39 years. FlexShares iBoxx 3-Year Target Duration TIPS Index Fund charges 18 bps in annual fees and has an AUM of $15.4 billion (read: TIPS ETF (TDTT - Free Report) Hits New 52-Week High).
Vanguard Short-Term Inflation-Protected Securities ETF (VTIP - Free Report)
With an AUM of $13.1 billion, Vanguard Short-Term Inflation-Protected Securities ETF offers exposure to TIPS with a maturity of less than five years by tracking the Bloomberg U.S. TIPS 0-5 Year Index. Holding 26 securities in its basket, VTIP has an average duration of 2.5 years and an average maturity of 2.6 years. The fund charges 4 bps in annual fees.
SPDR Bloomberg 1-10 Year TIPS ETF (TIPX - Free Report)
SPDR Bloomberg 1-10 Year TIPS ETF offers exposure to TIPS with remaining maturities between 1 and 10 years, with an adjusted duration of 4.38 years and an average maturity of 4.63 years. It follows the Bloomberg 1-10 Year U.S Government Inflation-Linked Bond Index and holds 39 securities in its basket. TIPX has amassed $1.4 billion in its asset base and charges 15 bps in annual fees.
Invesco 0-5 Yr US TIPS ETF (PBTP - Free Report)
Invesco 0-5 Yr US TIPS ETF offers exposure to 27 US TIPS with a remaining maturity of at least one month and less than five years by tracking the ICE BofAML 0-5 Year US Inflation-Linked Treasury Index. It has an effective duration of 2.43 years and years to maturity of 2.53. Invesco 0-5 Yr US TIPS ETF has an AUM of $51.2 million and charges 7 bps in annual fees.