Why TIP Lost Money in 2022 While Inflation Hit 9%: The Duration Trap Inside Most TIPS ETFs

Treasury Inflation-Protected Securities sound like they should be one of the easiest investments to own when inflation spikes. Unlike conventional Treasury bonds, TIPS have a principal value that adjusts with changes in the Consumer Price Index. Because the bond’s fixed coupon rate is applied to that inflation-adjusted principal, the dollar amount of interest paid can rise as well.

That’s broadly how the mechanics work when you’re holding an individual TIPS bond to maturity. Put a portfolio of TIPS inside an ETF, however, and the experience can become more counterintuitive.  Take the iShares TIPS Bond ETF (TIP). It’s one of the largest TIPS ETFs available, with roughly $14 billion in assets under management.

Yet during 2022, when U.S. inflation peaked above 9%, TIP lost 12.13%. The inflation protection didn’t stop working. Rather, another characteristic of the portfolio overwhelmed much of its benefit: duration. That’s why I think investors worried about another combination of persistent inflation and rising interest rates should pay attention to how much duration their TIPS ETF has.

The Duration Trap Inside TIP

High inflation tends to provoke a predictable monetary-policy response. When price increases remain too high, the Federal Reserve can raise short-term interest rates to cool demand and bring inflation back toward its target. That’s exactly what happened in 2022. The Fed raised rates aggressively as inflation accelerated, and bond yields rose across much of the Treasury curve.

Bond prices and yields generally move in opposite directions. If newly issued bonds suddenly offer higher yields, an existing bond paying a lower rate becomes less attractive. Its market price consequently falls until its yield becomes competitive with prevailing rates. Duration provides a useful approximation of that sensitivity.

TIP currently has an effective duration of about 6.14 years, and historically its duration has generally been in this neighborhood. As a rough rule, a six-year duration implies that a one-percentage-point increase in applicable yields could produce approximately a 6% decline in price, all else being equal. That’s the problem investors encountered in 2022.

For an individual TIPS bond held to maturity, interim price fluctuations may be less important because the investor can ultimately receive the inflation-adjusted principal subject to the Treasury’s terms. However, the average TIPS ETF doesn’t mature. It continually owns and replaces bonds, leaving shareholders exposed to the market prices of the securities in its portfolio.

A TIPS ETF With Much Less Duration

Once again in 2026, investors are dealing with elevated inflation and rising interest rates. This time, however, there are more specialized TIPS ETFs available. One of the newer options I like is the F/m Ultra Short Treasury Inflation-Protected Security ETF (RBIL), launched in February 2025. RBIL tracks the Bloomberg U.S. Ultra Short TIPS 1-13 Month Total Return Index and charges a 0.17% expense ratio. That’s one basis point cheaper than TIP’s 0.18%.

The important difference is maturity. RBIL concentrates on TIPS with only one to 13 months remaining. Investors still receive exposure to securities whose principal adjusts with CPI, but the portfolio has dramatically less interest-rate sensitivity than an intermediate-duration TIPS ETF such as TIP.

You can already see the inflation-sensitive nature of the underlying cash flows in RBIL’s distributions. On Aug. 20, 2026, the ETF paid approximately $0.12 per share. Its Sept. 17 distribution subsequently increased to $0.2455 per share, more than doubling from the previous month.

I wouldn’t assume distributions will continue at that level. TIPS ETF income can be irregular because inflation adjustments change with CPI, and monthly distributions can consequently move sharply in either direction. The structural advantage I’m more interested in is the short duration.

Now, there are environments where TIP could do better. If inflation remains elevated while real yields decline, its longer duration can become an advantage because falling yields increase bond prices. Likewise, if the Fed eventually moves into a substantial easing cycle, investors who eliminated duration may miss some potential capital appreciation.

But if my objective is specifically inflation protection, I prefer minimizing the second bet I’m making on interest rates.  For investors primarily interested in protecting purchasing power while minimizing sensitivity to another rate shock, RBIL offers a much more targeted way to own TIPS.

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