Bond ETF investors continue to scale back their inflation expectations on more signs the Federal Reserve may pump the brakes on its monetary stimulus.
The iShares TIPS Bond ETF (TIP) was down heavily for a second session on Thursday, one day after Fed chief Ben Bernanke said the central bank may soon begin tapering its bond purchases.
The ETF, which invests in Treasury Inflation Protected Securities, has been slammed recently on rising Treasury yields and diminishing inflation expectations. [TIPS ETFs Dunked Before Fed Decision, Inflation Data]
The pullback in TIPS mirrors the recent downward pressure on gold prices, and the selling could be driven by investors unwinding the inflation trade.
Earlier this week, the Labor Department said the consumer price index rose just 0.1% in May. Over the past year, core CPI is up 1.7%, below the Fed’s target.
The Treasury is set to auction $7 billion of 30-year TIPS on Thursday afternoon. [Plunging TIPS ETF Seen Bearish for Gold]
“TIPS, which are typically less liquid than other Treasuries, have borne the brunt of some of the heaviest selling of U.S. government debt as investors are less concerned that Fed policy will add to price pressures,” Reuters reports.
“Yields on 10-year TIPS traded at their highest since October 2011 on Thursday, at 28 basis points,” according to the report. “Concerns about inflation had pushed the yields into negative territory. That has since reversed for 10-year bonds as inflation readings fall and on higher expectations that the Fed’s bond purchase program will be wound down.”
TIP has a weighted average maturity of about 8.6 years, according to the ETF’s manager, BlackRock.
iShares TIPS Bond ETF
Full disclosure: Tom Lydon’s clients own TIP.
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- Ben Bernanke