By MIN ZENG
NEW YORK—While the focus has been on rising prices of regular Treasurys, a tiny, often-overlooked corner of the U.S. government-bond market—Treasury inflation-protected securities—has been the best-performing U.S. fixed-income asset this year.
Through Thursday, TIPS have handed investors a 12.09% return, almost double the 6.16% return of their big brothers, according to data from Barclays Capital. Over the same period, U.S. high-yield corporate bonds returned a meager 0.37% and municipal bonds returned 7.24%.
Vanguard Group and Pacific Investment Management Co., two of the world’s biggest TIPS investors, and Barclays Capital, the world’s biggest TIPS dealer, say the buying is strong because deflation isn’t a worry and investors want a way to hedge against the chance consumer prices trend higher in the longer term.
Kenneth Volpert, head of taxable fixed-income at Vanguard Group in Valley Forge, Pa., co-manages $37 billion in Vanguard’s Inflation-Protected Securities Fund, the world’s largest TIPS fund by assets, and has been a buyer of TIPS. He says the weak economy and the Federal Reserve’s easy policy could lead to “higher-than-expected inflation in the future.”