UnThreaded | Threaded | Whole Thread (7) | Ignore Thread Prev | Next
Author: galagan Big gold star, 5000 posts CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35361  
Subject: Re: SAFEHAVEN: Bondmarket Implosion! Date: 4/14/2004 4:17 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 1
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
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (7) | Ignore Thread Prev | Next

Announcements

Post of the Day:
Berkshire Hathaway

Brookfield Asset Management
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement