During the seven days ending 21 April, investors put another $1.6 billion in funds buying U.S. Treasury Inflation-Protected Securities (TIPS), according to research firm EPFR.
It was the 29th consecutive week of money flowing into TIPS, raising the total invested to $14.4 billion so far this year.
TIPS has seen its longest run of investment since the streak from December 2008 into early 2010 during the Great Recession, EFPR noted.
TIPS moving higher is in line with our expectations that the economic recovery will inflate prices for goods and services, which is driving the influx.
“Inflation is the number one concern,” Collin Martin, a Charles Schwab fixed-income strategist, told the Financial Times. “If you’re worried about a significant upside surprise in inflation, there is no better investment that can act as a hedge.”
Different Strokes
Jerome Powell, chair of the U.S. Federal Reserve, has said repeatedly that any inflation sparked by the economic recovery will be moderate and temporary, as supply chains adjust to returning demand.
Recent break-even rates support his view.
Break-even rates are calculated by subtracting the actual yield, after figuring in inflation, from the nominal yield. Last week, the two- and five-year break-even rates were 2.63 and 2.57, respectively, indicating investors see inflation as more of a short-term risk than a medium-term threat.
TREND FORECAST: We continue to forecast rising inflation, which will, in turn, push up yields on 10-year Treasuries. As inflation expectations rise, so, too, will more investors move into TIPS. According to EPFR, investors bought $1.2 billion in TIPS in the week ending April 21st. As the Wall Street Journal reported, this was the 29th consecutive week of inflows into these funds.
