[Alberta's Child]

In my humble opinion they DON’T work. The flaw in a TIPS investment is this: the U.S. government that issues the bonds is the same U.S. government that measures inflation. So the U.S. government has a huge incentive to screw the investor by artificially under-reporting inflation rates.

[Norseman]

>>The flaw in a TIPS investment is this: the U.S. government that issues the bonds is the same U.S. government that measures inflation. So the U.S. government has a huge incentive to screw the investor by artificially under-reporting inflation rates.<<

You’re right, but not just because they’re worried about the payout on the TIPS. Social Security payments are adjusted each year by the previous year’s inflation rate. And while there are over $500 billion of TIPS outstanding, the inflation adjustment is paid at maturity. In contrast, the government pays out over a trillion dollars in SS payments every year and the inflation adjustment is paid immediately. The government has a huge incentive to find ways to adjust the CPI downward over time, and has done so.

[hardspunned]

Yeah, that’s what caught my eye. The feds are still calling the shots on CPI, with that huge gubmint thumb on the scale.

[zeestephen]

LOL - I thought the whole point of inflation was to over-report it and destroy the underlying value of government bonds?

However, I definitely agree that no one I know has ever made a lot of money buying or shorting TIPS.