Despite Q4 Losses, TIPS Earn 4.4% in 2016 and Outperform Treasurys

As a result of the post-election sell-off in bonds, treasury inflation-protected securities recorded a loss of 3.0% in the 2016 fourth quarter, their worst performance since the 2013 second quarter. TIPS performance has slipped with each passing quarter in 2016. Perhaps the only consolation was that TIPS outperformed comparable maturity straight Treasurys, which suffered a loss of 4.6% in the quarter.

The TIPS yield curve shifted up sharply across intermediate- and long-term maturities in the fourth quarter. Yields on short-term maturity TIPS (i.e. those maturing from 2017 to 2021) were also up, but the yields on the shortest maturity TIPS (to 2018) were either unchanged or lower. The average increase in intermediate and long-term TIPS yields was about 40 basis points. The average TIPS yields (across all maturities) was positive (at 0.24%) for the first time this year. Despite the sharp increase, however, average TIPS yields ended 2016 nearly 40 basis points below 2015 year-end levels.