There’s a growing sense among bond strategists and investors that Treasury Inflation-Protected Securities’ biggest outperformance since 2009 is at risk.
Firms including UBS Group AG and Aberdeen Asset Management say the Federal Reserve’s $120 billion of monthly bond purchases have disproportionately benefited the relatively thinly traded TIPS market, pushing their yields to deeply negative levels. Meanwhile, investors have been pouring an unprecedented amount of money into funds that invest in the securities, seeking protection from soaring inflation.
Now, both pillars underpinning the $1.6 trillion TIPS market are coming under pressure. The Fed, which has hoovered up the debt through its quantitative easing, has signaled it may scale back the purchases this year. Inflation, meanwhile, is showing signs of peaking, potentially reducing demand for TIPS as a hedge.
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