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Friday's Featured News
$39 Trillion Debt Signal: 3 TIPS ETFs to Hedge Persistent InflationReported by Chris Markoch. Posted: 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 press than it should have. The "2025 Financial Report of the United States Government" showed that the gross national debt as of Sept. 30, 2025, was $37.6 trillion. Real-time tracking released in April puts the updated figure at $39 trillion. That number is difficult to comprehend, 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 approximately $970 billion in interest on its debt—more than the entirety of the widely publicized defense budget. And as the debt increases, so too will its interest costs.
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That dynamic gives the U.S. government both motive and ability to tolerate modestly higher inflation. It helps explain the divide between some economists and government officials on interest-rate policy. The irony is that the most likely catalyst for rate cuts may not be a slowing economy—it could be roughly $10 trillion in debt coming due in 2026 that must be refinanced at whatever rate the market will bear. For investors, this makes preparing now for the prospect of higher inflation later a prudent consideration. The Case for Inflation-Protected SecuritiesSince 2022, the Federal Reserve has largely focused on tamping down inflation. That pushed long-term interest rates (for example, 10-year Treasury notes) 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 begins to flatten. The wild card is inflation, which remains structurally higher than the Fed's 2% target. Current readings are nearer 2.8%–3%. If the government prefers inflation to run a bit hot, a de facto 3% inflation rate becomes financially convenient because it lowers the real burden of debt and reduces real interest costs. Using inflation as a fiscal tool is not new: the most recent historical example came after World War II, when inflation helped reduce the real value of wartime debt. If that approach re-emerges, Treasury Inflation-Protected Securities (TIPS) become a rational response for investors seeking to stay ahead of inflation. That logic explains the popularity of Series I Savings Bonds in 2022. But I bonds have practical limits—most notably a $10,000 annual purchase cap and a one-year lock-up period. That is why the market's TIPS-related offerings—ETFs and mutual funds—can serve as practical inflation hedges within portfolios. Investors should consult a financial planner or tax professional to determine which, if any, of these instruments suits their situation. SCHP: The Core Holding for Broad TIPS ExposureFor investors who want straightforward inflation protection without making a 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 and holds bonds across the short, intermediate, and long maturity spectrums. Here’s why that matters: when the Consumer Price Index (CPI) rises, the principal value of each underlying TIPS bond adjusts upward. Interest payments are calculated on that adjusted principal, so income rises with inflation as well. It’s a dual-protection mechanism that nominal Treasury notes don’t provide. With an expense ratio of just 0.05%, SCHP is a low-cost way to gain broad TIPS exposure. The tradeoff is duration risk: with an effective duration around 6.5 years, rising real interest rates will pressure the fund’s 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 meaningful duration risk while waiting for Fed rate cuts. For those who expect elevated inflation but are uncertain about the timing of a policy pivot, the Vanguard Short-Term Inflation-Protected Securities ETF (NASDAQ: VTIP) offers a more defensive entry into the same thesis. VTIP focuses on TIPS with maturities of zero to five years, keeping its weighted average maturity near 2.5 years. That shorter duration makes the fund far less sensitive to real-rate movements than a broad TIPS fund like SCHP. If real rates rise before the Fed pivots, VTIP should experience far less price damage. The inflation-protection mechanics are identical: principal adjusts with CPI and income follows. Because its bonds mature quickly, VTIP effectively reinvests into newly issued TIPS at current real yields, giving it a repricing advantage in a rising-rate environment. VTIP’s expense ratio of 0.07% is marginally higher than SCHP’s but still negligible. It’s a suitable tool for investors who want to hedge inflation without committing to a long-duration view—think of it as the defensive lineman of the TIPS lineup: not built for outsized upside, but effective at holding the line. 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 a duration currently above 20 years, LTPZ moves dramatically with changes in real interest rates. That makes LTPZ appropriate only for investors with high risk tolerance. Long-duration TIPS are the most levered expression of the financial-repression thesis: if inflation persists at 3% or higher while the Fed eventually cuts rates to ease the refinancing burden on roughly $10 trillion in maturing debt, long real yields could compress sharply. In that scenario, LTPZ would benefit from both inflation adjustments to principal and strong price appreciation as real yields fall. But the risk is real. If real rates continue to rise before any Fed pivot, LTPZ can suffer steep losses; its worst stretches, including 2022, produced double-digit declines. For that reason, this fund should be treated as a high-conviction satellite position—appropriate only for investors who have a strong macro view and the stomach to endure volatility. |
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