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TIPS ETFs Brace for Inflation Data This Week


Treasury Inflation Protected Securities ETFs have rebounded, moving back above their short-term trend line for the first time since May after being hammered by rising yields and diminishing inflationary expectations.

The iShares TIPS Bond ETF (TIP) was relatively flat Monday, but it has gained 0.7% in the last week and 1.9% over the past month. TIP has also crossed over its 50-day simple moving average, trading about 0.6% above its short-term trend. [Vanguard: Timing TIPS]

The iShares 7-10 Year Treasury Bond ETF (IEF) has a similar weighted average maturity as TIP. IEF was 0.3% over the last week and up 1% over the past month, which suggests that TIP’s outperformance may be partly attributed to rising inflationary trends.

On Tuesday, the markets will be watching for the import and export price data. The import price indices are compiled for prices on foreign goods brought into the U.S. while export price indices show prices on U.S. goods sold abroad. Both prices reveal inflationary trends in the international market.

Import prices dipped 0.2% in June, the fourth monthly negative reading, according to Bloomberg data. Petroleum import prices, though, rose 0.2% and could continue into July given the sharp rise rise in crude oil. Excluding petroleum, import prices fell 0.3% for the second consecutive month.

Observers will also be focusing on the producer price index reading Wednesday. The PPI is a measure of the average price level on a fixed basket of capital and consumer goods on prices received by producers.

In June, the PPI rose 0.8% after a 0.5% increase in May. The core rate, which excludes food and energy, was up 0.2% after a 0.1% rise.

Market watchers will also focus on the consumer price index data Thursday. The CPI represents the rate of inflation.

The CPI rose 0.5% in June after inching up 0.1% in May. The core CPI, excluding food and energy, was up 0.2% in both June and May.

“Import prices likely rose in July following four consecutive monthly declines,” David Kelly, Chief Global Strategist at J.P. Morgan Funds, said in a note. “However, a year-over-year decline of roughly 1.6% should highlight the benefit the U.S. economy has derived from a higher dollar and falling commodity prices over the last year. Core CPI, which is much less affected by outside forces, should post a 1.7% year-over-year gain, roughly the same as in each of the last four months, suggesting that, for now, inflation pressures are neither rising nor falling.”

The Fed has set an inflation target of 2%, and the personal consumption expenditure deflator, the central bank’s preferred guage, was up 1.3% in June year-over-year, Bloomberg reports. [Bill Gross Bullish on TIPS, ETFs as Fed Aims for Higher Inflation]

iShares TIPS Bond ETF

For more information on Treasury inflation protected securities, visit our TIPS category.

Max Chen contributed to this article.

Full disclosure: Tom Lydon’s clients own TIP.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.