In this paper, we review the case for short-term Treasury Inflation Protected Securities (TIPS). We presume the reader is already familiar with the broad TIPS asset class. Therefore, we focus on the ways in which shorter duration TIPS differ from the overall TIPS market. Specifically, we focus on interest rate and inflation sensitivity.
We find that short-term TIPS can provide a purer hedge against inflation, especially unexpected inflation. Therefore, any investor who is concerned about surprise inflation should consider whether short-term TIPS might deserve a role in their portfolio.