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Short TIPS To Get Unusual Boost

Short TIPS could enjoy an unusual boost in demand in the next two weeks due to rising inflation.

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.

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