TIPS buying opportunity: Bob Elliott sees rare value near 3% real yields
Unlimited Funds CIO Bob Elliott says long-dated TIPS offer rare value as yields rise to about inflation plus 3% a year.
By Frankie Delgado · News Reporter
3 min read
Bob Elliott, chief investment officer of Unlimited Funds and a former Bridgewater executive, has put a fresh spotlight on a TIPS buying opportunity after a bond-market selloff pushed long-term inflation-protected Treasury yields close to 3% above inflation, according to MarketWatch columnist Brett Arends.
Elliott wrote on X on Thursday that 30-year Treasury inflation-protected securities were near 3% real yields and called them a “generational buying opportunity.” The pitch landed as investors continue to chase stock-market gains while higher bond yields have made some corners of the Treasury market look more tempting.
Why are TIPS a buying opportunity?
TIPS are U.S. Treasury securities designed to protect investors from inflation. Their principal adjusts with inflation, and their quoted “real yield” is the return investors receive on top of inflation.
Arends reported that longer-dated TIPS are now offering about inflation plus 3% a year, while shorter-term TIPS are paying around inflation plus 2%. He described those levels as unusually high compared with history.
That distinction matters. If inflation averaged 3% annually, a TIPS real yield of 3% would imply a total return of about 6% a year, before any other market-price changes. Elliott’s argument, as reported by MarketWatch, is that many investors may dismiss 3% because they are thinking in nominal terms, rather than recognizing that the figure comes on top of inflation.
What is Bob Elliott saying about stocks?
Elliott’s case is also a warning about the broader market setup. He told MarketWatch that valuations in stocks and bonds are reflecting unusually strong expectations for economic growth, with stock prices looking expensive by many measures.
His view is that TIPS can help diversify a portfolio if those growth expectations fall short and stocks struggle. He said real yields have climbed to levels not seen in decades and above levels reached during the housing boom that came before the 2007-09 global financial crisis.
Arends compared the current TIPS yields with long-run Treasury returns using New York University Stern School of Business data going back to 1928. He found that the median real return for a regular 10-year U.S. Treasury bond in any given year was 1.1%, while the median 10-year-period real return was 0.8%. The average real return, according to his calculation, was no higher than 1.5%.
What could go wrong with TIPS?
The national debt hangs over the discussion. Arends cited gross federal debt at 123% of gross domestic product, using Federal Reserve Economic Data, and raised the possibility that the U.S. could try to ease its debt burden through higher inflation, as it did after World War II.
That scenario would damage ordinary, or nominal, Treasury bonds because their payments do not rise with inflation. TIPS are built differently, so inflation protection is the point of the product.
Asked by Arends whether the federal government might try to alter the inflation calculations tied to TIPS, Elliott said the risk was “Zero,” arguing that such a move would be challenged in court and fail. Arends was less certain, while also noting that TIPS make up only 7% of federal debt, leaving far more debt in regular Treasurys without inflation protection.
Arends also pointed to a past example from the market peak in 2000. From June 2000 through the following decade, he wrote, the Vanguard Inflation-Protected Securities Fund doubled investors’ money, while the S&P 500 lost 15% before inflation.
This story draws on original reporting from MarketWatch.