iShares TIPS Bond ETF

TIP

Market cap $13.9B

The iShares TIPS Bond ETF offers exposure to U.S. Treasury Inflation-Protected Securities, providing a hedge against inflation and attractive real carry. TIP's performance is driven by real yields and inflation expectations, with current real yields near decade highs and breakevens stable around 2.2–2.4%. Market signals suggest inflation expectations remain anchored, making TIP sensitive to real rate movements and cyclical shifts rather than long-term inflation regime changes.

Long-term U.S. treasuries were pushed lower Tuesday as the ouster of Federal Reserve Gov. Lisa Cook by President Donald Trump fueled uncertainty regarding the independence of the central bank and monetary policy direction.

The bond market looks increasingly focused on slowing economic growth vs. tariff inflation.

I'm slightly bullish on TIP for the rest of 2025, as Fed policy shifts should lower real rates and reduce liquidity impacts of Fed tightening. TIP benefits from dovish Fed moves, but rising inflation expectations and bank and Treasury liquidity strains could undermine stability beyond 2025. A surge in Treasury issuance and low bank liquidity may force the Fed to resume quantitative easing, boosting TIP but destabilizing the dollar and promoting higher long-term inflation.

STIP delivered close to a 9% gain since one year ago, surpassing my 5% total return prediction. The current setup offers an asymmetric opportunity for TIPS to profit from a higher-than-expected inflation outlook and monetary policy easing. I will maintain my hold rating on STIP shares due to the 8% return prospects in the coming 12-month horizon.

The iShares TIPS Bond ETF is set to face an interesting period amid a recalibration in real and nominal yields. The ETF, which has an expense ratio of 0.18% and a 30-day SEC yield of 5.14%, invests in inflation-linked treasuries. We anticipate real yields to settle lower in the next six months. However, we think inflation and breakevens will fall in tandem, softening TIP ETF's return outlook.

Break-even inflation is high, which makes it less attractive to set up positions in TIP, an ETF with maturities around 7 years. Even though TIP has withstood downward pressure better over the past year than non-indexed ETFs like TLH, which have durations of 10–20 years. I don't think the macro data suggest a potential inflation spike, which could make it more advantageous to shift toward other fixed income solutions.

In recent days, a new headwind is weighing on fixed income securities: a US government budget bill, which is expected to significantly raise an already hefty federal deficit in the years ahead. Long-term Treasuries are the biggest losers post-Liberation Day, based on a set of ETFs through yesterday's close (May 21).

I maintain a Strong Buy rating on the iShares TIPS Bond ETF due to its inflation protection, despite recent market volatility and tariff turmoil. The current tariff situation under President Trump has escalated inflation concerns, making TIPS and the TIP ETF attractive for hedging against inflationary pressures. Gold has surged in 2025, reflecting inflation fears, but TIP offers a more stable inflation hedge with potential for a 15-20% price increase.

The recent market sell-off appears driven by panic, highlighting the importance of considering TIPS in portfolio construction. TIP ETF, with its $14B AUM and competitive performance, serves as a benchmark for medium-to-long duration TIPS. Given current inflation expectations and the (odd) expectations of Fed rate cuts, TIP ETF could perform well.