This still doesn't mean holding onto a TIPS fund (or buying into one) in a rising interest rate environment is a good idea—declines in NAV will likely at least lead to total returns of zero for a few years—but the risks are a lot less than with a regular Treasury fund.

I disagree. If nominal rates rise because of inflation, then you're obviously right. But if real rates rise significantly - not a big stretch, especially since yields on the oldest ten-year TIPS maturing in 2007 are close to zero - then you will see the same sort of losses on TIPS that you see on regular bonds. If inflation isn't a problem but rates rise, then the inflation component won't make up for the difference. And with real rates so low, it wouldn't take as much of a move in real rates to create some big capital losses.

I guess the premise I take issue with is that in any interest rate move up, half of it is due to inflation. That has yet to be seen.

dan