Alex looks at data showcasing the exploding demand for inflation-protected bonds in the United States. Treasury Department data shows over $3.8 billion in sales of Series I savings bonds in November and December of 2021. Series I bonds pay a fixed interest rate plus inflation. Alex discusses his heightened concerns about the 2022 economic environment and laments on how the FED and current government representatives are handling inflation.

This is an excerpt from episode 191 of Winner Take All. Watch the full episode here:

Originally Aired: 01/18/22
#Inflation #Bonds #Hedge
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Inflation-protected bond sales have shown a noticeable uptick in recent months as investors seek to hedge against potential inflation. This comes amidst a backdrop of rising market volatility fuelled by concerns of a potential economic slowdown, coupled with record levels of government stimulus spending.

With these concerns in mind, more and more investors are looking for safety in investments that preserve the real value of their assets, and inflation-protected bonds have become an increasingly attractive option. These bonds, often called “TIPS” (Treasury Inflation-Protected Securities), are bonds issued by the U.S. Treasury that offer protection against inflation.

Unlike regular bonds, TIPS are indexed to inflation, meaning that their principal is automatically adjusted in line with inflation rates. This ensures that the bond’s value remains relatively constant over time, even as prices rise. In essence, investors who hold TIPS are better protected against the eroding effects of inflation on their investments.

In recent months, TIPS have seen a surge in demand as investors seek to protect their portfolios against the negative economic effects of inflation. According to a recent report from Bloomberg, TIPS funds have seen inflows of over $14 billion since the beginning of 2021 – an enormous increase compared to previous years.

What is driving this demand for TIPS? One of the key factors is the unprecedented levels of government stimulus spending that have been put into motion over the past year. The U.S. government has enacted a series of massive relief packages, hoping to curb the economic fallout from the pandemic. However, these measures have led to concerns about inflation.

Many investors worry that the huge amounts of money being pumped into the economy will result in runaway inflation – that is, an unstoppable rise in prices that can severely erode the real value of investments. This has led investors to seek safe, inflation-protected investments like TIPS in order to mitigate these risks.

Another factor contributing to the demand for TIPS is the overall uncertainty surrounding the future of the global economy. The pandemic has caused immense disruptions to markets and supply chains, leading to significant volatility in many sectors. Investors are eager to protect their portfolios against these potential fluctuations, and inflation-protected bonds are a popular hedge.

In summary, the surge in demand for inflation-protected bonds like TIPS demonstrates the growing concern among investors about the risk of inflation in the current economic climate. As stimulus measures continue to be implemented and global economic uncertainty persists, it is likely that we will see continued growth in the TIPS market as investors seek to protect their assets against inflation.