Amid heightened volatility and economic uncertainty, the market for exchange-traded funds holding Treasury inflation-protected securities has rekindled after three consecutive years of outflows.
According to FactSet Research Systems, U.S.-listed TIPS ETFs added $5.5 billion in net inflows through April 4, bringing total assets to $63.6 billion. More than half of those flows went to short-term TIPS products from Vanguard Group and BlackRock. The quarter also included the launch of an ultrashort-term TIPS ETF from F/m Investments.
In a market where tariff policy is expected to both drive up the cost of goods and potentially dampen growth, the $2 trillion TIPS market looks like a haven of protection. The March 31 reopening of the 10-year TIPS auction, for example, saw par value at auction move to $102.34 from $98.92 on Jan. 31, according to the U.S. Treasury.
“From an allocator’s long-term perspective, TIPS is a favorite asset class for real rate exposure,” said Phillip Nelson, partner and head of asset allocation at investment consultant NEPC. “As a rough target, we look at TIPS holdings equal to the size of a Treasury allocation or relative to investment-grade exposure.”
Nelson has observed, however, that 5-year and 10-year breakeven rates are “currently a little rich.” Breakeven rates are the spread between nominal Treasuries and TIPS at constant maturities.
According to the Securities Industry and Financial Markets Association, the TIPS market accounts for roughly 7% of outstanding Treasury issuance. TIPS, however, are not traditionally included in fixed-income indexes utilized by ETF products.
"TIPS typically haven't been integrated as components of core fixed-income benchmarks," said Nick Gendron, global head of fixed income index product management at Bloomberg LP. "Generally what we've seen is that TIPS have been looked at as a separate allocation across a spectrum of fixed-income investments."
TIPS are issued in five-, 10- and 30-year maturities. "There is a lot of depth across issuance," said Gendron, "and the main challenge for index providers is creating the most meaningful maturity-based subindices."
BlackRock’s iShares offers a $14.5 billion broad-based TIPS index ETF with an effective duration of 6.6 at an expense ratio of 0.18%, and an $11.5 billion short-term product with an effective duration of 2.38 and an expense ratio of 0.03%, according to BlackRock, as well as a suite of single maturity ETFs through 2035 that can be used for building a TIPS ETF ladder outside of buying and rebalancing specific issuances. Vanguard’s $13.6 billion short-term TIPS ETF has an effective duration of 2.5 and an expense ratio of 0.03%, according to the manager.
Year-to-date total returns through April 4 for TIPS ETF ranged from 3.3% for short-term products to roughly 4.5% for intermediate-term products, according to data from FactSet.
Interestingly, only one product listed in the U.S. market invests in non-U.S. government inflation-protected bonds. The $317 million SPDR FTSE International Government Inflation-Protected Bond ETF invests in securities from 20 countries with an aggregate effective duration of 8.9, according to Morningstar. The ETF has a 0.50% expense ratio and returned 4.8% through April 4, according to FactSet.
First introduced in 1997, TIPS are indexed to inflation as determined by the consumer price index. Resetting every month, the principal value increases (or decreases) daily based on an index factor determined by CPI from two months prior. Both interest paid and principal accrual are federally taxable, making TIPS holdings more effective for tax-advantaged accounts and investors, including many target-date funds.
“For TIPS, ETFs have one other potential advantage relative to direct holdings, and that is the ability to provide distributions which can offset or diminish the impact of this ‘phantom income,’” said Daniel He, executive vice president and portfolio manager at PIMCO.
While this year’s TIPS ETFs flows have focused on the short term, He said that PIMCO currently finds the 5-10 year part of the curve the most attractive, expected to benefit both from more persistent inflation (higher inflation accrual) and a slowing economy (lower real yield). Along with a 1-5 year product, PIMCO offers the only long-term TIPS ETF, the $731 million PIMCO 15+ Year U.S. TIPS Index ETF, among the top-performing TIPS funds this year at 6% through April 4, benefiting significantly from its extended duration in a falling interest rate environment.
The impact of duration risk in light of inflation, however, sent $10.4 billion rushing out of TIPS ETFs in 2022 as the Federal Reserve pushed short-term interest rates higher. This followed $40.2 billion of net inflows in 2021 as inflation surged with rates near zero amid the COVID-19 recovery.
Even as net inflows have picked back up in 2025, Elisabeth Kashner, director of global funds research and analytics at FactSet, said investors appear “once burned, twice shy.”
Yet, recent market uncertainty may be revealing more confidence in the TIPS market.
“Over the last month and a half, we’ve received a lot more questions on TIPS given the uncertainty of the tariff regime,” said NEPC’s Nelson. “Within our OCIO business, clients want to know if they have enough liquidity to meet cash flow needs. They are looking to get more diversified, add fixed income, and allocate slightly more to TIPS.”
