Question about TIPS funds
Join Date: Dec 2004
Posts: 281
How is the net asset value of a TIPS mutual fund affected by changes in prevailing interest rates (of non CPI-indexed bonds) or the CPI?
Join Date: Apr 2003
Posts: 2,272
The same inverse relation as with nominal bonds I think.
Join Date: Mar 2004
Posts: 224
If the CPI rose substantially, then TIPS would in theory become more desired by the market and the real yield (now 2% -2.5%) would fall.
If you owned TIPS, this falling real yield would make your existing high yield bonds more valuable.
Like any bond, if interest rates rose (in a low inflation environment), then the TIPS resale value would fall.
