No. of Recommendations: 7
There is an article discussing TIPs that is worth reading.
http://www.cxoadvisory.com/blog/external/blog12-17-09/


Do TIPS Work?

they conclude that:

* TIPS provide a good real-return hedge, despite CPI measurement error and possible demographic differences among TIPS investors. TIPS indexed to CPI are as good as TIPS indexed to other inflation measures, because inflation risk is largely independent of the measure used.
* TIPS better protect long-term, buy-and-hold investors than investors who hold TIPS for less than the full maturity. Over relatively short horizons, bond price volatility overwhelms the relatively small deviations between actual and expected inflation.
* The inflation rate implied by the difference in yields between nominal Treasury and TIPS markets are neither clean measures of expected future inflation nor likely to be good predictors of future inflation (see chart below).
* A "ladder" of TIPS, with maturities linked to anticipated expenditure timeframes, would help investors in or near retirement hedge against inflation in nominal expenses over time.
...
In summary, TIPS work reasonably well as an inflation hedge for long-term holders, but they are not particularly useful in measuring inflation expectations.



Rich
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