Short TIPS could enjoy an unusual boost in demand in the next two weeks due to rising inflation. The move could partially reverse the sell-off that typically occurs this time of year as seasonally falling inflation make the bonds less desirable, according to Charles Lee, interest-rate strategist at UBS.
April's unusually high non-seasonally adjusted Consumer Price Index could drive up demand for the January '07 TIPS as the bonds' principal is reset based on the CPI. A spike in crude oil futures drove April non-seasonally adjusted CPI to a high for the month compared to the past two years. As a result, the two-year TIPS will double their carry in June compared to last year and become a more attractive investment than they normally are this time of year, Lee said.
