Such securities have served investors well over the last few years, as falling interest rates push bond prices higher.
The Barclays Treasury Inflation Protected Securities index, for example, produced a total return (which consists of the bond’s income distributions plus any appreciation or depreciation in the price of the bond itself) of 13.6 percent in 2011, 6.3 percent the year before, and 11.4 percent in 2009. It is up roughly 2.5 percent this year.
The total return for the SPDR DB International Government Inflation-Protected Bond ETF, is also up roughly 8 percent year-to-date.
By comparison, conventional 10-year Treasury bonds returned 17 percent last year and 8.1 percent in 2010, on the heels of a nearly 10 percent loss in 2009.
Due to demand from wary investors, however, the yield on TIPS is in negative territory; for 10-year TIPS the interest payments are hovering at negative 0.4 percent.
Those buying today are willing to accept a negative yield because they believe inflation is likely to rise enough to compensate for the loss they’re locking in and because they seek the safe haven that government backed bonds provide, says Christine Benz, director of personal finance for fund tracker Morningstar.
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