The TIPS Trade Has a Nice Risk/Reward
Sometimes a trade comes along where the upside scenario isn't necessarily your base case view, but the magnitude of that upside is so much greater than the downside that the trade makes sense. Right now, TIPS (Treasury inflation protected securities) are one of those trades.
Remember that TIPS are Treasury bonds whose principal value actually increases as consumer prices (as measured by the consumer price index) rise. Thus the yield on TIPS is effectively the "real yield," or yield less inflation expectations. Typically, inflation expectations are highly correlated with real yields, i.e., both rise when growth is robust and both fall when growth is weak. So typically, TIPS are nothing more than a less volatile version of regular Treasury bonds....545 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.
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