Bob Elliott sparks buzz highlighting the bargain level of TIPS

The Federal Reserve, led by Kevin Warsh, is grappling with inflation, interest rates and the national debt.

I need to start this column with a caveat: I am writing about an asset class that I happen to own myself (although as I happen to own stocks, bonds, commodities, cash and real estate, you could reasonably ask what's left).

Make of that what you will.

Investment guru Bob Elliott, the chief investment officer of Unlimited Funds and formerly of hedge-fund giant Bridgewater, on Thursday generated a fair amount of buzz when he argued that long-dated inflation-protected Treasury bonds, known as TIPS, are now a "generational buying opportunity."

"Recent bond selloff has driven 30yr TIPS to near 3% real yields," he wrote on X. "While everyone roots around to find the next hot stock, this is likely the generational buying opportunity hiding in plain sight."

TIPS are a recurrent feature of this column. I recommend them especially to older and more conservative investors, and I think TIPS, not regular Treasurys, are the real "risk-free asset" - at least to the extent there is such a thing. And, as mentioned, I own them myself.

Amid the latest selloff, long-term TIPS now sport yields, or interest rates, of inflation plus 3% a year, known as a "real yields." Shorter-term TIPS are paying inflation plus 2% a year. These are very high by historic standards.

I was so intrigued I called Elliott to hear more.

The first thing to note is that his argument isn't just about TIPS. It's also about the rest of the market.

Elliott contends that right now, stocks are incredibly expensive by almost any measure, and stock prices are based on very high growth expectations. His point is that TIPS are arguably the best way to diversify your portfolio in case growth expectations, and therefore stocks, disappoint.

Valuations across stocks and bonds mean that "an extraordinary growth boom is being priced into both stocks and bonds, and in particular real interest rates," he tells MarketWatch.

"Real yields have risen to levels we haven't seen in a couple of decades, [and even] above where we saw in the housing boom," he says, referring to the boom before the global financial crisis of 2007-09.

"It's made stocks extraordinarily expensive on all sorts of measures, and on the flip side, it's made bonds cheap on many," Elliott says. Stock-market valuations today rely on some of "the highest growth expectations we've seen in the post-World War II period."

Many investors right now may turn their noses up at the idea of locking in a 3% yield for years or even decades, Elliott points out. This is especially true after the extraordinary stock-market boom of the last few years, he says.

But, he adds, people often forget that this apparently low figure is a "real" yield, meaning it comes on top of any inflation. (For example, if inflation averages 3% a year, then a TIPS with a 3% real yield will pay you 6% a year.)

Often, people don't understand how good that real yield is by historic standards. Especially, he points out, as it's guaranteed.

Using data from the New York University Stern School of Business going back to 1928, I found that the median real return on the regular 10-year U.S. Treasury bond during any given year was 1.1%. The real return on 10-year Treasurys over the median 10-year period was 0.8%. Yes, really. (Even using the regular average, which gives hefty weight to the occasional windfall, raises it no higher than 1.5%.)

Here's something they tend not to tell you on Wall Street: If you owned 10-year Treasurys for any 10-year period from 1933 through 1973, you almost never saw even a 1% real return, let alone 3%. In nearly all cases your real return was negative. (Before taxes and fees, too.)

This was how the U.S. government managed the enormous debt load at the end of World War II: By letting inflation rise, keeping Treasury yields too low, and slowly stealing from bondholders. Long-term bonds became known, jocularly, as "certificates of confiscation": Owning them entitled you to have some of your money confiscated by the government every year.

One of the worries hovering over all Treasury bonds today is the insane and rocketing national debt, which is at 123% of gross domestic product (at a gross level) and climbing.

What worries me more than the numbers is the infantile way the national debt is being handled, with billionaires waving chainsaws in the air and promising fantasy savings, and people in responsible positions lying to voters about a nonexistent "Walking Dead" army of zombies supposedly claiming trillions in fraudulent Social Security benefits. If American politics grows up, our national debt problems can be handled. If it doesn't, they can't be.

Maybe a bond crisis will focus the minds. A U.S. sovereign debt crisis would collapse the entire global financial system. Campaign donors, the people who really matter in our plutocracy, would presumably get on the phone to their poodles in Washington and jerk their leashes.

The simplest way to escape this debt burden is to do what the U.S. did after 1945, and inflate it away. Curiously, a number of people on X, replying to Elliott's tweet, seemed to think this would be negative for TIPS. Logically, it would be the reverse, because TIPS yields are on top of inflation.

I asked Elliott what risk he sees of the federal government trying to change the inflation calculations on TIPS. "Zero," he says. "They would be sued, and they would lose."

I may not be quite so optimistic - if I were, I would probably have most of my money in 30-year TIPS. I suspect the federal government needs more inflation to get out of this debt crisis, and needs to run the economy "hot," as hedge-fund manager Harris Kupperman puts it. I wouldn't be remotely surprised if Federal Reserve Chair Kevin Warsh's multiple internal reviews lead to a "new," and conveniently lower, inflation calculation - allowing him to cut short-term interest rates.

Elliott argues such a move would be self-defeating, because Treasury bond yields would rise to compensate. But either way, TIPS in total account for just 7% of the federal debt. The rest consists of regular, or "nominal," Treasury bonds that have no protection against inflation. If the federal government came for TIPS and tried to change their terms retroactively, it would involve a lot of pain for very little gain. I'm willing to accept that Washington is full of thieving morons, but I have to assume they are rational thieving morons with some sense of self-preservation.

Nobody knows what the future will bring. But when Elliott points out that investors today aren't interested in 3% because they figure they'll earn 25% a year on their stocks, it rings a bell. That was exactly what I, and other young and foolish people, thought in 2000, at the tail end of the technology bubble. My late friend Peter Bennett, a brilliant fund manager in London, called TIPS - in some cases with real yields nearing 4%, if you can imagine - a "one-way bet." And so it proved. In the decade from June 2000, the Vanguard Inflation-Protected Securities Fund VIPSX doubled your money, while the S&P 500 SPX lost you 15% - before inflation.

-Brett Arends

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

July 24, 2026 08:29 ET (12:29 GMT)

Copyright (c) 2026 Dow Jones & Company, Inc.