is the tip just a way to protect the treasury bond rates from inflation. i'm sure inflation is hear to stay, but i'm not sure commodities will rise much further. my money market rates went down, and i'm looking for a place to park my money and still benefit on the inflation trend...or inflation plateau. however, does cpi need to rise each time it reports to have a benefit, or does it just need to remain high or above the cpi rate i paid. the fed is having a fire-sale on my savings.
the way i see it now is why buy. what bond does this fund try to protect 2,5,10, or 30? at only 3.5+% its not protecting much. if the fed cuts again the bond rate goes down, and would i still have to have cpi come in at above 4.5%? 4.5 is the last rate of the cpi.
where should i put my cash to protect it? a utility with high div? dollar cost average into some commodities?
not so clear from many of the TIPS descriptions is that your principal is protected from inflation - not just the coupon rate. if there was a 4% adjustment for inflation then the principal returned to you at maturity is 4% greater than the original principal - this is in addition the coupon payments. additionally, in the unlikely event of deflation then you get your original principal back at maturity - only the coupon payments will be reduced. this is big win for investors - you are highly assured of a real rate of return on your investment regardless of economic flucuations.
"Inflation" means rising prices. If you think inflation is "here to stay" then you are saying that you think prices will keep going up. If that's what you think, buy TIPS. If not then don't. If prices are high and stay high, that's not inflation.
As I understand it, subtract the 10 year treasury rate and then add the rate of inflation. Eg, if 10 year treasury is yielding 4%, inflation is 3 %, and tips are yielding 2%, then the inflation protected yield on a tip is 5% which is better than a treasury bond or bond fund.