Steven Saunders is a Director, Portfolio Advisor with Round Table Wealth Management. He is a member of our investment team and a member of the firm’s Investment Committee. His responsibilities include manager research, due diligence, client portfolio analysis, and asset allocation evaluation. Steven is a graduate of the University of Wisconsin-Milwaukee with a B.S. degree in Finance as well as having completed the Investment Management Certificate Program (IMCP). He holds the Chartered Financial Analyst® and Chartered Alternative Investment Analyst designations. Steven enjoys exploring the outdoors through camping and mountain biking.
Investors may be quick to buy TIPS if they fear inflation is going to increase. As the name would suggest, coupon payments on these bonds do adjust based on inflation but that is only part of the potential return. The other portion of the return is the ‘real yield,’ which is the yield on a nominal Treasury bond less the implied inflation. TIPS outperform nominal bonds when the real yield is declining, meaning inflation expectations are increasing faster than nominal rates in a rate rising environment. However, if nominal yields increase at a faster pace than inflation expectations, a TIPS investor can actually lose money as real yields rise. This scenario can happen even if inflation is at elevated levels so long as nominal yields are also at elevated levels.3 September 2021