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Today's Featured Article
$39 Trillion Debt Signal: 3 TIPS ETFs to Hedge Persistent InflationAuthor: Chris Markoch. Originally Published: 4/19/2026. 
Key Points
- Surging U.S. debt and refinancing needs may keep inflation structurally elevated.
- TIPS ETFs provide built-in inflation protection through CPI-adjusted principal and income.
- Investors can choose between short-, intermediate-, and long-duration TIPS strategies depending on risk tolerance.
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A recent report from the U.S. Treasury Department received less attention than it deserved. The "2025 Financial Report of the United States Government" showed the gross national debt as of Sept. 30, 2025, was $37.6 trillion. Real-time tracking released in April puts the updated figure at about $39 trillion. That number is hard to fathom, but for investors it carries an important signal about inflation that shouldn't be ignored. This isn't alarmist rhetoric—it's arithmetic. In 2025 the federal government paid roughly $970 billion in interest on its debt—more than the entire widely publicized defense budget. And as the debt grows, so too will interest costs.
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That implies the U.S. government has both motive and leverage to tolerate (or even steer) modestly higher inflation. It's part of the reason economists and government officials often differ on the appropriate path for interest rates. The likely catalyst for rate cuts may not be a slowing economy but rather about $10 trillion in debt coming due in 2026 that must be refinanced at whatever rates the market demands. For investors, this makes preparing now for the possibility of higher inflation later a prudent consideration. The Case for Inflation-Protected SecuritiesSince 2022 the Federal Reserve has largely focused on bringing inflation down. That allowed long-term interest rates (for example, 10-year Treasury notes) to rise above short-term rates (for example, two-year Treasury notes). When the Fed begins cutting rates—as it started to do in 2024—the yield curve tends to flatten. The wild card is that inflation appears to be structurally higher than the Fed's 2% target. Current readings sit around 2.8% to 3%. If policymakers tolerate inflation nearer 3%, that outcome becomes financially convenient: it lowers the real debt burden and reduces real interest costs. Using inflation as a fiscal tool is not new—the U.S. used a similar approach after World War II to reduce wartime debt. If a similar dynamic plays out today, Treasury Inflation-Protected Securities (TIPS) become a natural hedge for investors seeking to protect purchasing power. That was also why Series I Savings Bonds were in high demand in 2022, though I bonds have limits—a $10,000 annual purchase cap and a one-year lock-up period. Because of those limits, ETF and mutual-fund wrappers tied to TIPS are worth considering as portfolio inflation hedges. Investors should consult a financial planner or tax professional to determine whether any of these investments suit their objectives. SCHP: The Core Holding for Broad TIPS ExposureFor investors who want straightforward inflation protection without making a specific duration bet, the Schwab U.S. TIPS ETF (NYSEARCA: SCHP) is a logical core holding. The fund tracks the Bloomberg U.S. Treasury Inflation-Protected Securities Index and holds TIPS across short, intermediate and long maturities. Here's why that matters: when the Consumer Price Index (CPI) rises, the principal value of each underlying TIPS bond adjusts upward. Since interest payments are calculated on that adjusted principal, income rises with inflation as well. That's a dual-protection feature that nominal Treasury notes do not provide. With an expense ratio of just 0.05%, SCHP is a low-cost way to gain this exposure. The trade-off is duration risk: with an effective duration around 6.5 years, rising real interest rates will pressure the fund's price. For investors who expect inflation to remain structurally elevated while the Fed eventually cuts rates, that trade-off may be acceptable. VTIP: The Conservative Play for Rate-Sensitive InvestorsNot all investors want to accept meaningful duration risk while waiting for Fed cuts. For those who expect elevated inflation but are uncertain about the timing of a Fed pivot, the Vanguard Short-Term Inflation-Protected Securities ETF (NASDAQ: VTIP) offers a more defensive entry point. VTIP focuses on TIPS maturing in zero to five years, keeping its weighted average maturity near 2.5 years. That relatively short duration makes the fund far less sensitive to moves in real interest rates than broader TIPS funds like SCHP. If real rates rise before the Fed pivots, VTIP will suffer much less price damage. The inflation-protection mechanism is the same: principal adjusts with CPI and interest payments follow. Because the underlying bonds mature quickly, VTIP effectively reinvests into newly issued TIPS at current real yields, which provides a natural repricing advantage in a rising-rate environment. Its expense ratio of 0.07% is only marginally higher than SCHP's and remains negligible for most investors. VTIP is a suitable tool for those who want to hedge inflation now without committing to a long-duration view—think of it as the defensive lineman of the TIPS lineup: not built for explosive upside, but designed to hold the line. LTPZ: The High-Conviction Bet on Persistent InflationAt the other end of the spectrum is the PIMCO 15+ Year U.S. TIPS ETF (NYSEARCA: LTPZ). The fund holds TIPS with maturities longer than 15 years, making it one of the longest-duration inflation-protected instruments available to retail investors. That duration—currently above 20 years—means the ETF is highly sensitive to changes in real interest rates. Long-duration TIPS are the most leveraged play on a financial repression thesis. If inflation persists at 3% or higher while the Fed ultimately cuts rates to ease the refinancing burden on $10 trillion in maturing debt, long real yields could compress sharply. In that scenario, LTPZ would benefit from both inflation adjustments to principal and significant price appreciation as real rates fall. But the risk is substantial. If real rates continue rising before any Fed pivot, LTPZ can suffer large losses—its worst periods, including 2022, produced double-digit declines. For that reason, this fund should be a high-conviction, satellite position only for investors who have a strong macro view and the tolerance to endure significant volatility. |
