Treasury Inflation-Protected Securities (TIPS) for Australians in 2025

Inflation is the silent thief of wealth, quietly eroding the real value of your savings year after year. As inflation forecasts remain stubbornly high for 2025, many Australians are searching for ways to safeguard their purchasing power. One option that’s caught the eye of savvy investors? Treasury Inflation-Protected Securities (TIPS). But what are TIPS, and do they make sense for Aussie portfolios in the current climate?

What Are Treasury Inflation-Protected Securities?

Treasury Inflation-Protected Securities (TIPS) are US government bonds designed to shield investors from inflation. The principal value of TIPS rises with the US Consumer Price Index (CPI), ensuring that both your initial investment and the interest you earn keep pace with inflation. When TIPS mature, investors are paid either the adjusted or original principal—whichever is greater.

• Issued by: The US Department of the Treasury
• Interest payments: Fixed rate, paid semi-annually, applied to the inflation-adjusted principal
• Maturity terms: 5, 10, or 30 years
• Protection: If inflation rises, so does your principal; if deflation occurs, you never get less than your original principal at maturity

While TIPS are denominated in USD, Australian investors can access them via global bond ETFs or managed funds listed on the ASX.

Why TIPS Matter in 2025’s Inflation Landscape

After a turbulent few years, inflation remains at the forefront of global economic concerns. In 2025, the Reserve Bank of Australia (RBA) continues to wrestle with inflation above its 2–3% target, while the US Federal Reserve’s policy path remains uncertain. Global supply chain hiccups, energy market volatility, and persistent services inflation have kept upward pressure on prices—meaning that traditional fixed-rate bonds risk losing value in real terms.

For Australians, this poses a double-edged sword. While local inflation is still high, the Australian government does not issue an equivalent to TIPS (such as the US Treasury’s program). That means local investors must look offshore—typically to the US—for inflation-linked bonds. In 2025, TIPS yields have become more attractive due to both higher real yields and expectations that inflation will remain sticky. For example:

• US 10-year TIPS yield (May 2025): around 2.0% real yield, plus inflation adjustment
• Australian government inflation-linked bonds: Available, but with far less liquidity and accessibility for everyday investors

Some ASX-listed ETFs now offer TIPS exposure, making it easier for Australians to add global inflation protection to their portfolios.

Pros and Cons of TIPS for Australian Investors

Before jumping in, it’s worth weighing the unique advantages and potential drawbacks of TIPS—especially for Australians:

Benefits

• Inflation protection: TIPS principal and interest payments rise with US inflation, helping preserve real value.
• Safe-haven status: Backed by the US government, TIPS are considered among the safest bonds globally.
• Portfolio diversification: TIPS often perform differently from equities and traditional bonds, especially during inflationary shocks.
• Accessible via ETFs: ASX-listed global bond ETFs now make it possible for retail investors to gain TIPS exposure in AUD.

Drawbacks

• Currency risk: TIPS are denominated in USD. Unless you invest via a hedged ETF, you’re exposed to AUD/USD fluctuations.
• Yield trade-off: Real yields on TIPS are typically lower than nominal bond yields when inflation expectations are modest.
• Tax complexity: TIPS interest and principal adjustments may have unique tax implications, especially for foreign investors.
• Not a perfect hedge: TIPS track US inflation, not Australia’s CPI. If local inflation diverges from the US, protection may be imperfect.

How to Invest in TIPS from Australia

Australians can’t buy TIPS directly from the US Treasury, but the process is still straightforward. Here’s how you can add TIPS exposure:

1. ASX-listed ETFs: Several Australian ETFs offer global inflation-linked bond exposure, with a large portion allocated to US TIPS. Examples in 2025 include iShares Global Inflation-Linked Bond ETF (ASX: ILB) and BetaShares Global Inflation Linked Bond Currency Hedged ETF (ASX: XGIG).
2. International brokers: For advanced investors, global brokerage accounts can allow direct TIPS purchases on US exchanges.
3. Managed funds: Some Australian fixed income funds include TIPS or other inflation-linked bonds as part of their strategy.

When choosing an investment vehicle, pay attention to currency hedging, management fees, and the proportion of TIPS versus other inflation-linked bonds.

Is Now the Right Time for TIPS?

With the inflation outlook for 2025 still uncertain, TIPS offer a compelling hedge for Australians wary of eroding purchasing power. They won’t suit every investor, but as part of a diversified portfolio, TIPS can provide a rare combination of safety and inflation protection—especially when accessed via low-cost ETFs. As always, consider your own goals, risk tolerance, and the role of global inflation in your broader financial plan.