Buy some TIPS? Could inflation accelerate?

[Lsbcal]

Currently short dated TIPS are not exactly exciting but maybe a better alternative then nominal bonds?

Here are some current numbers focusing on 2 to 3 years:
1) 3.3 year TIPS are at about 0.32%
2) Vanguard short term inflation protected (VTAPX) is at 0.28% SEC yield (2.3 year duration, ER=0.1%)
3) 3 year brokered CD is at 1.75%

Energy prices have been on a strong downtrend this year as everyone knows. Might they stabilize or even go up? It has happened before. Here is a chart of 2 measures of cpi. The Fed is reported to target the one without energy and food (blue line). The red line on the chart is the "headline" inflation data.

I'm thinking with the Fed at least jawboning about rate increases and inflation kind of looking a little dodgy to me, maybe buying some short term insurance would be a good deal.

By buying TIPS directly (#1 above) and holding to maturity, one could at least get some real return on their money.

Thoughts?

 

[aja8888]

I held the old Vanguard TIP fund for years and sold it a few years ago for a significant capital gain in my IRA. Since the outlook for inflation is pretty low, I would buy CD's and build a ladder as rates (or inflation) increases. But that's just my opinion.

 

[Independent]

I have a non-COLA pension and an extremely risk-averse wife.

So inflation is a big risk to me, and TIPS seem like a good way to deal with that.

I don't buy TIPS because they work with expected inflation, nominal bonds would do just as well. But, TIPS provide some insurance in case of higher-than-expected inflation.

 

[Lsbcal]

Yes, TIPS are for higher then current market expectations for inflation. If one buys nominal Treasuries and inflation stays at the "break even point" then TIPS and nominals have similar real returns.

I'm only thinking of short term TIPS as a way to navigate the next few years where we could have rising rates and some inflation. Currently inflation is subdued especially headline inflation.

I do not mean to say they are a big win, just risk mitigation with some modest fraction of my FI portfolio. Maybe 5% to 10% of my bond portfolio.

CD's are another way to go. But the Fed is targetting 2% inflation and if oil (for instance) moves up, then 1.75% 3 year CD's will look kind of anemic. Of course, there is always the possibility that commodities move sideways and inflation is subdued.

Well all my cogitations on this are probably built into the current market bond prices.

 

[Closet_Gamer]

I really avoid trying to time anything. I keep about 5% of my portfolio in TIPS as part of my bond allocation. Like most things in investing, I expect this to be exceptionally boring right up until it gets unexpectedly exciting. And then I will respond to that excitement with boring rebalancing...