Why TIPS funds drop with equities on high inflation numbers

[mikes425]

A frustrated balanced portfolio holder asks, as bond fund disappointment is renewed today. I wonder what the realistic time frame is...as far as when bonds will stop moving in tandem with equities. NAV losses carried from last year have not recovered in any meaningful sense.

 

[Retiired]

BBC Headline; Jamie Dimon: Head of US largest bank, warns US interest rates could rise to 8%.

That would not be good for the ol' NAV if that happens!

 

[mikes425]

BBC Headline; Jamie Dimon: Head of US largest bank, warns US interest rates could rise to 8%.

That would not be good for the ol' NAV if that happens!

haha, true that! The operative word of course is..."could." I wouldn't bank on 8% though. And, Jamie has been known to drop some pretty dire predictions that didn't go according to his plans.

 

[mathjak107]

if you are going to predict , predict often , and jamie has no shortage of wrong predictions

 

[audreyh1]

Of course TIPs drop when interest rates rise, and stocks are often affected negatively as well.

Due to the recent stronger than expected inflation data rates have backed up slightly and that hit both stocks and bonds. It can happen. Don’t fret over this it’s just part of a typical cycle. Hopefully you are in for the long haul and can ignore short term moves.

 

[Chuckanut]

Bonds may take a hit if inflation stays high, but that also means the yield on bonds when we reinvest will be higher than they would have been.

My goal with income investing is to beat inflation on a real basis after taxes. If I can do that, I’ll be very satisfied with my bonds, CDs and maybe some preferred stocks in the future.

 

[mikes425]

Of course TIPs drop when interest rates rise, and stocks are often affected negatively as well.

Due to the recent stronger than expected inflation data rates have backed up slightly and that hit both stocks and bonds. It can happen. Don’t fret over this it’s just part of a typical cycle. Hopefully you are in for the long haul and can ignore short term moves.

Yep thanks. Trying to anyway.

 

[tulak]

I’m a fan of TIPS and hold to maturity. I bought a 10-year TIPS today at a better rate than what I paid at auction last January.

I avoid bond funds, not because they’re bad, but because they don’t fit in my portfolio. If I was to mark to market my individual TIPS, I’d have similar thoughts, but I conveniently avoid price fluctuations since I hold to maturity and don’t care what they’re worth until then.

 

[all4j]

A frustrated balanced portfolio holder asks, as bond fund disappointment is renewed today. I wonder what the realistic time frame is...as far as when bonds will stop moving in tandem with equities. NAV losses carried from last year have not recovered in any meaningful sense.

I get your frustration & you may not be really asking for detail, but...you might get better clarity if you ask about specific funds. Your title mentioned TIPS, but your text only referenced bond funds. & equities is also a broad term.

Think about what really impacts the NAV of a bond fund & its mainly interest rates for the appropriate duration. TIPS layer on inflation rate. Are you familiar with portfoliovisualizer? Look at the correlation between the funds in question & adjust time periods. You'll see the correlation may differ depending upon duration of the bonds/tips & whether large or small cap equities.

In looking at just the nav portion of return for a bond/tips fund, you're only seeing part of the picture. However, even including distributions won't necessarily get you to performance matching a few years back when interest rates were falling & inflation tame.