The opportunity to lock in a real, or inflation-adjusted interest rate is one of the great innovations of modern finance. The question of timing one’s decision on buying and selling, on the other hand, is subject to all the usual pitfalls regardless of the security in question.
Fortunately, historical context sometimes offers a touch of enlightenment, as illustrated by the recent track record of the 10-year yield on the 10-year inflation-indexed Treasury, or TIPS as they’re commonly called. As the chart below illustrates, higher yields have come to those who wait. Or so the last few months suggest.
Buying a 10-year TIPS as of last night’s close delivered a real 2.37% yield. That’s near the highest in several years. In fact, last Friday’s trading closed with a 2.43% TIPS yield, the highest since September 2003. That’s a nice improvement over the TIPS yields of under 1.7% as recently as last September.
The question, of course, is whether locking in a real 2.37% yield now is sufficiently enticing for weathering the future. Or, might there be even higher real yields available in the weeks and months ahead?