Inflation Was So Bad That It Even Crushed Inflation-Linked Bonds
As the US economy veered toward the biggest inflation shock in four decades, investors flocked to the one corner of Wall Street that seemed a sure-fire refuge: Treasuries that provide extra compensation to keep up with rising consumer prices.
Then the brutal reality of bond-market math shredded that sense of safety.
The Federal Reserve’s unusually steep interest-rate hikes caused the securities to tumble severely along with the rest of the bond market — so deeply, in fact, that the price drop more than erased the extra payouts tied to the soaring inflation rate.
Even with the bonds rebounding over the past two months on speculation the Fed is poised to slow its rate hikes, the Bloomberg index of Treasury Inflation Protected Securities, or TIPs, is headed for a loss of nearly 10% this year. That’s the worst since they were created in the 1990s and only slightly smaller than the hit taken by standard Treasuries.
The drubbing caused a pullback from the securities for much of the year, with investors effectively seeing them fail just when they were needed the most — like an insurance policy that didn’t payout when disaster struck.