Even the biggest drop in consumer prices in six decades cannot dissuade the world's biggest bond investors from buying protection from inflation.
The day after the Labor Department said the Consumer Price Index fell 1.3% in the year that ended in May, the biggest drop since 1950, BlackRock Inc. issued a special report on June 19 on why investors should purchase Treasury Inflation Protected Securities.
Bill Gross, manager of the world's biggest bond fund at Pacific Investment Management Co., calls TIPS attractive and says Treasuries are among the worst places to invest.
TIPS are the only long-term U.S. government debt to post gains in what is the worst year for U.S. securities since at least 1978. TIPS have returned 2.98% since December, including reinvested interest, while Merrill Lynch's U.S. Treasury Master index slumped 5.7%.
TIPS pay interest on a principal amount that rises or falls based on the index. Inflation-protected bonds due in 10 years yield 1.85 percentage points less than Treasuries.