Are TIPS still subject to the inverse relationship between interest rates/price? The 10-year TIP issued 01/15/2004 was recently trading at 100 around October 2008. Since then, interest rates have gone from 2% down to 1%. If there is an inverse relationship, then the price should have gone up. Or, being that these are adjusted based on inflation, they don’t change based on the interest rates? Also, is it because we’re in such a crazy environment that the normal inverse relationship between interest rates/price does not exist (because everyone is selling everything to go to cash/treasuries)? Thank you!
TIPS are more influced by inflation/deflation factors, and supply/demand.
I’m finding TIPS difficult to analyze. If interest rates go down because Fed/Treasury is injecting liquidity/money, that would suggest that TIPS prices should rise. On the other hand, if the injection is likely to aggravate inflation, the yield would rise, sending the price down. To be interest rate neutral (but exposed to inflation), I guess you would want to be long TIPS and short regular treasuries of the same duration.
So a decrease from 100-90 is based more on fear although the index ratio has gone from 1.19 to 1.18?
a brave man would be long TIPS in a deflationary world. that they are going down should tell you no one really wants inflation protection these days.