Iran-related developments cloud the outlook for inflation and economic growth. Given this backdrop, consider Treasury Inflation-Protected Securities (TIPS) for your clients.

Key takeaways:

• With inflation unexpectedly sticky this year and the near-term outlook for oil prices clouded, your clients may be increasingly anxious about the elevated pressures on U.S. goods and services prices.
• Given the inflationary backdrop, consider talking with clients about shifting a small allocation of their core bond holdings from Treasuries to TIPS. Unlike nominal Treasuries, TIPS are specifically engineered to help investors combat inflation.
• Although breakeven rates on 5- and 10-year TIPS have risen sharply this year, as shown in the chart, a sustained increase in oil prices might keep inflation elevated for even longer than TIPS may currently reflect.