I think that this fund will do o.k. going forward. With the new wave of baby-boomers (probably) being counseled to re-balance their equity:bonds ratio, this is one that will be in demand. Without that demand, I'd be more inclined to be pessimistic about bond funds going forward. Certainly, short-term bonds would be a better call, as far as interest rate risk, but with VIPSX' holdings, people will go for security against inflation risk, etc. After the run over the past few years, the ceiling here is certainly closer than the floor. Good luck, longs.
Return on these instruments should be fairly negative until inflation starts to take effect. Bond funds are more volatile than holding TIPs outright, and you get the panic selling affecting the whole fund. Also, they don't mature and there is churning in the account as bond yields rise and costs drop. I believe at some point, who knows when, VIPSX will be a buy again; another thought is this, when the stock market drops people tend to run into the bonds. However in 2008, there wasn't a place to hide and Bernanke now has run out of bullets and has to rearrange his strategy slowly and carefully. All the bonds of all types seem to have taken a downturn; corporate, treasury, tips, municipal. It's all about Big Ben and whether he will raise interest rates and stop buying bonds at the same pace as now. No inflation with rising interest rates tends to be bad news for TIPs. Good luck if you are holding on; buy when the weekly shows a turnaround, other than that my advice would be to sell and sit back and wait for this to play itself out.