TIPS Outperform Straight Treasurys in the 2017 Fourth Quarter

TIPS finished the year with a very strong performance, their best since the 2016 second quarter. For the 2017 fourth quarter, TIPS posted a total return of 1.8%, much better than the 0.2% on comparable maturity straight Treasurys. This was also TIPS’ strongest quarterly performance of the year. During 2017, TIPS posted gains in three of the four quarters, recording a loss of 0.3% only in the 2017 second quarter.

As with straight Treasurys, the TIPS yield curve flattened in 2017. Short-maturity TIPS increased in yield, rising from negative to positive levels. Longer maturity TIPS, meanwhile, declined in yield. In fact, the decline in long maturity TIPS drove 2017 fourth quarter returns and was the primary reason for TIPS’ outperformance in the fourth quarter.