Subject: Re: 30 year TIPS has highest yield in 24 years

I have great respect for Wendy's ability to call TIPs at the top. That said, I just got off the phone with Wendy where we had a chat about the tax ramifications of the "phantom income" as the bonds continue to acquire value at the rate of inflation. Speak to an accountant before you arbitrarily buy these for their income as (based on our interpretation), if inflation rises the way it did during the 1980's, while the capital value of the bonds will compound quickly, the tax on the phantom income (if you are in a high tax bracket) could exceed the income generated by the bond (for a negative cash flow).

I asked Wendy if the percentage yield above inflation during the 1980's was higher than it is now (to compensate for the higher taxes) and she doesn't remember either - though it may not be the same taxation rate for institutional investors anyway.

It just goes to show that there is no free lunch, but sometimes it's still worth it to eat.

Jeff