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Use these market charts to support your conversations with clients about asset-allocation opportunities.

Clients looking for inflation protection?

April 27, 2025

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

Line chart comparing the ten year and five year breakeven rates over the past year

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.
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Breakeven rates on Treasury Inflation-Protected Securities (TIPS) are the difference between the yield of a nominal Treasury bond and a TIPS of the same maturity. This rate represents the average annual inflation rate investors expect over the life of the bond as of the time when the breakeven rate is captured.

Nominal Treasuries are Treasury securities that pay a fixed interest rate and return a fixed principal amount at maturity without adjusting for inflation, unlike TIPS.

Sources: Schwab Center for Financial Research; Bloomberg. Daily data from 3/16/2025 to 3/16/2026. Indexes are unmanaged, do not incur management fees, costs, and expenses and cannot be invested in directly. For additional information about the indices and terms shown, please visit www.schwabassetmanagement.com/resources/glossary.

Past performance is no guarantee of future results.

Investing involves risk, including loss of principal. The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. 

All expressions of opinion are subject to change without notice in reaction to shifting market, economic or political conditions. Data contained herein from third party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

​Fixed income securities are subject to increased loss of principal during periods of rising interest rates. Fixed income investments are subject to various other risks including changes in credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications, and other factors.

Treasury Inflation-Protected Securities (TIPS) are inflation-linked securities issued by the US Government whose principal value is adjusted periodically in accordance with the rise and fall in the inflation rate. Thus, the dividend amount payable is also impacted by variations in the inflation rate, as it is based upon the principal value of the bond. It may fluctuate up or down. Repayment at maturity is guaranteed by the US Government and may be adjusted for inflation to become the greater of the original face amount at issuance or that face amount plus an adjustment for inflation. Treasury Inflation-Protected Securities are guaranteed by the US Government, but inflation-protected bond funds do not provide such a guarantee.

The yields of TIPS funds, including the SEC Yield, are adjusted monthly based on changes in the rate of inflation and these changes can cause the yield to vary substantially from month to month. Exceptionally high yield is attributable to the rise in inflation rate and might not be repeated. Exceptionally low or negative yield is attributable to the fall in inflation rate and might not be repeated.

Diversification does not ensure a profit and does not protect against losses in declining markets.

The Schwab Center for Financial Research® is a division of Charles Schwab & Co., Inc. Articles attributed to SCFR are the opinions of employees of Charles Schwab & Co., Inc., Member SIPC and may not reflect the views of Schwab Asset Management.

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