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Additional Reading from MarketBeat.com
$39 Trillion Debt Signal: 3 TIPS ETFs to Hedge Persistent InflationAuthor: Chris Markoch. Article 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.
- Special Report: The Biggest IPO Ever: Claim Your Stake Today
A recent report from the U.S. Treasury Department didn’t receive as much press as it should have. 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 there is an important signal about inflation that shouldn’t be ignored. This isn’t alarmism—it's just math. In 2025, the federal government paid roughly $970 billion in interest on its debt—more than the entirety of the widely publicized defense budget. As the debt grows, so too will interest costs.
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That creates both the motive and the means for the U.S. government to tolerate modestly higher inflation. It helps explain the divergence between some economists and government officials on the path for interest rates. The irony is that the most likely catalyst for rate cuts may not be a slowing economy but rather about $10 trillion in debt coming due in 2026 that needs to be refinanced at whatever rates the market will demand. For investors, this suggests preparing now for a higher-inflation environment later could be prudent. The Case for Inflation-Protected SecuritiesSince 2022, the Federal Reserve has largely focused on tamping down inflation. That allowed long-term interest rates (for example, 10-year Treasury notes) to rise above short-term rates (for example, two-year Treasury notes). However, when the Fed begins cutting rates—as it started to do in 2024—the yield curve flattens. The wild card is inflation, which remains structurally elevated. The Fed’s target is 2%, but current readings are closer to 2.8%–3%. If the government benefits from modestly higher inflation, a 3% rate becomes financially convenient (lower real debt burden and lower real interest costs). Using inflation as a fiscal tool has historical precedent. The most recent example followed World War II, when the country worked down its wartime debt. If that dynamic re-emerges, Treasury Inflation-Protected Securities (TIPS) become a sensible hedge for investors aiming to preserve purchasing power. That’s also why Series I Savings Bonds were popular in 2022, though I bonds have limits—a $10,000 annual purchase cap and a one-year lock-up period. That’s why TIPS-related securities available in the market can serve as practical inflation hedges for portfolios. Investors should consult their financial planner or tax professional to determine which, if any, of these investments fit their goals. SCHP: The Core Holding for Broad TIPS ExposureFor investors who want straightforward inflation protection without taking a specific duration bet by buying individual TIPS, the Schwab U.S. TIPS ETF (NYSEARCA: SCHP) is a logical choice. The fund tracks the Bloomberg U.S. Treasury Inflation-Protected Securities Index, holding TIPS across short, intermediate and long maturities. Here’s why that matters. When the Consumer Price Index (CPI) rises, the principal of each underlying TIPS bond is adjusted upward. Interest payments are calculated on that adjusted principal, so income generally rises with inflation—providing a type of dual protection that nominal Treasuries don’t offer. With an expense ratio of just 0.05%, SCHP is a low-cost way to gain this exposure. The tradeoff is duration risk: with an effective duration around 6.5 years, rising real interest rates will put downward pressure on price. For investors who believe inflation will remain structurally elevated while the Fed eventually cuts rates, that tradeoff may be acceptable. VTIP: The Conservative Play for Rate-Sensitive InvestorsNot all investors are willing to accept substantial duration risk while waiting for a Fed pivot. For those who expect elevated inflation but are less certain about the timing of rate cuts, the Vanguard Short-Term Inflation-Protected Securities ETF (NASDAQ: VTIP) offers a more defensive way to play the same thesis. VTIP focuses on TIPS with maturities of zero to five years, keeping its weighted average maturity near 2.5 years. That short duration makes the fund far less sensitive to changes in real interest rates than a broad TIPS fund like SCHP. If real yields rise before the Fed pivots, VTIP will suffer much less price damage. The inflation-protection mechanism is the same: principal adjusts with CPI and income follows. Because the bonds mature quickly, VTIP can reinvest into newly issued TIPS at prevailing real yields, giving it a natural repricing advantage in a rising-rate environment. Its expense ratio of 0.07% is slightly higher than SCHP’s but still negligible. VTIP is a sensible tool for investors who want to hedge inflation now without committing to a long-duration view—think of it as the defensive lineman of the TIPS lineup: built to hold the line rather than chase upside. LTPZ: The High-Conviction Bet on Persistent InflationIf VTIP represents the conservative end of the TIPS spectrum, the PIMCO 15+ Year U.S. TIPS ETF (NYSEARCA: LTPZ) sits at the other extreme. The fund holds TIPS with maturities longer than 15 years, making it one of the longest-duration inflation-protected instruments available to retail investors. With duration currently above 20 years, LTPZ is highly sensitive to movements in real interest rates. That sensitivity means LTPZ is appropriate only for investors with a high risk tolerance. Long-duration TIPS are the most leveraged expression of the thesis that policy will tolerate higher inflation to ease debt burdens. If inflation settles at 3% or higher while the Fed eventually cuts to ease refinancing pressure on roughly $10 trillion of maturing debt, long real yields could compress sharply—driving both inflation adjustments and significant price appreciation for long-duration TIPS. The downside is real: if real rates continue to rise before a pivot, LTPZ can fall sharply. Its worst drawdowns, including in 2022, produced double-digit losses. For that reason, LTPZ is best used as a high-conviction satellite position for investors who have a clear macro view and the stomach to endure substantial volatility. |
