Bloomberg Surveillance · Wednesday, September 16, 2026
The current 3% real yield on Treasury Inflation-Protected Securities (TIPS) is considered attractive, being 2% higher than the Fed's neutral rate. However, there's a risk associated with TIPS in a 'risk-off' scenario, where they could underperform significantly as markets price in disinflation. Therefore, favoring nominal bonds is recommended due to the high real yield, even if inflation expectations remain controlled.
“So maybe we have to meet in the middle, but 3%, 2% more. The attraction of TIPS is the immediate consideration here. So TIPS should be good value with a 3% real yield.”
“The problem is TIPS investors, TIPS traders know that if you had a risk-off, you'd be in one of the worst possible products. Because in a risk-off, illiquid instruments like TIPS would massively underperform And markets would start to price disinflation and deflation.”
“So I think the positioning should favor nominals. So you buy nominals because the real yield is high. It doesn't mean to say you buy tips.”