Short TIPS in lieu of Short Treasuries

[cnh]

What do folks think of a short TIPS fund in lieu of a short treasuries fund for a PP cash proxy?

[MachineGhost]

Wouldn't that be a bet on deflation which the LT bonds already do?

[AdamA]

Wouldn't that be a bet on deflation which the LT bonds already do?

I think he means a short term TIPS fund, not actually a fund that shorts TIPS.

[sophie]

This came up on the board a while ago and I looked into a couple of options.  The problem is that the average maturity in these funds e.g. STIPS is 3 years or more, which isn't what you want.  If inflation gathers steam, it's quite likely that interest rates will be going up.  Then your dividends would increase but the principle would go down.  It's hard to predict whether the increased dividends will offset the losses.

It might be worth considering for deep cash, but I decided to stick with I Bonds.

[cnh]

Wouldn't that be a bet on deflation which the LT bonds already do?

I think he means a short term TIPS fund, not actually a fund that shorts TIPS.

That's exactly what I as asking. I wasn't referring to shorting TIPS.  Thanks for clarifying that.

Thanks, sophie, for the feedback.  Though perhaps not the preferred way to go, I thought SHY was considered a viable cash PP option for those in a position to accept a little more interest rate risk.  It has a listed duration of 1.82.  STIP currently reflects a slightly higher duration of 2.49.  Don't like the current negative yield on STIP, but I was simply wondering whether having some cash in a vehicle that responds well to unanticipated inflation might be worth the interest rate risk.

[Jan Van]

This is something I was considering too. Maybe not a tips fund, but buying 5yr tips at auction for part of the cash that won't be used the coming 5 years anyway. You're guaranteed to get the principal returned, so no risk there.