September 2008, Wealth Manager
Has the Treasury market stumbled in anticipating inflation? Does it even matter?
By James Picerno
Inflation is upwardly mobile again, or at least it was before the financial crisis exploded. Pricing pressures may fade until the economic and financial ills stabi¬lize. Regardless of inflation’s future path, the jump in consumer prices in the past several years seems to have caught inflation-indexed Treasuries, a.k.a TIPS, off guard. That has led some observers to question the bonds’ merits as inflation hedges. But such worries are misplaced even though TIPS have been less than dependable as a window on prospective inflation.