Three Percent Real TIPS Yields: Boring But Valuable
Would you consider investing in a bond that earns more than three percent after accounting for inflation? What if that security has zero chance of default? Such an opportunity exists today in US Treasury Inflation-Protected Securities (TIPS). One more question: Would your answer change if the expected real return on stocks over the next ten years was well below three percent? To wit, the scatter plot below shows the correlation between S&P 500 CAPE10 valuations and the 10-year forward real returns that ensued. While the graph doesn't show the path of returns over the next ten years, the…
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