Should I Invest in Treasury Bonds During Inflation?

Few people see the value of investing in long-term Treasury bonds now that inflation exceeds bond interest rates.

As of Sept. 13, 2022, the U.S. inflation rate was over 8%1, while 10-year Treasury bonds were at 3.42%2, which means you have a real (inflation adjusted) interest rate yield that is negative unless inflation quickly drops back to 2%.

At the same time, bond prices are decreasing, making Treasury bonds more attractive as their yields rise. The return on 30-year Treasury bonds since rates troughed in 2020 is about -30% due to declining bond prices that occurred as interest rates increased. So, the question becomes: Are bonds a suitable option for hedging against inflation?

Should I Invest in Bonds During Inflation?

If you’re considering investing in inflation-linked bonds, also known as Treasury Inflation Protected Securities (TIPS), it’s crucial to understand how they fit into your portfolio and investment strategy. Long- and short-term investors have different goals, and when to invest in inflation-linked bonds is unique to each strategy.

Both short- and long-term treasuries could have different purposes for your goals.

  1. Short-Term Treasuries

Short-term treasuries from 1 to 5 years have a return rate of around 4%. There aren’t many investments generating that kind of return today. And, since it isn’t clear whether we’re in a protracted recession that will be detrimental to the stock market, short-term treasuries could be the safer option. Keep in mind that bonds aren’t necessarily hedging against inflation but hedging against Wall Street volatility.

In addition, the 2-year TIPS bond is currently paying a 2% real yield on top of the Consumer Price Index (CPI). We think this is a particularly attractive investment and have been buying these bonds.

  1. Long-Term Treasuries

Because the yield curve inverted this summer, you can earn more interest on a short-term bond than 10- and 30-year Treasury bonds. When you invest in long-term Treasury bonds, you risk interest rates continuing to increase as inflation persists — which is a possibility. In our view, gold is likely to perform better than long-term bonds due to the fact that real Treasury bond yields will likely remain in negative territory for years.

In addition, long term TIPS bonds are currently paying more than a 1% real yield on top of the CPI. If you want to lock in better-than-inflation returns for the next decade, this could be the way to do it.

We believe that it’s likely that inflation will define the next decade. This means that no markets are truly safe from turbulence; investing more in short-term Treasuries and short-term TIPS could be a good way of generating short-term returns during the coming recession.

Of course, you shouldn’t make these types of decisions alone — visit Pekin Hardy Strauss Wealth Management to make strategic decisions within the context of your portfolio.

If There’s Inflation, Do I Invest in Bonds?

Bonds are a valuable part of a diversified portfolio because they provide stability and consistency. In a recessionary environment, such as the one we are now entering, you will want to own high-quality bonds, and there is no higher quality bond than a U.S. Treasury bond. We happen to think TIPS are currently attractive, but the situation is evolving on a daily basis due to all of the volatility in the bond market.

Considering the high-inflation, low-interest-rate environment investors are facing today, your current bond allocation should probably be curtailed somewhat, but not gotten rid of entirely. Helping our clients reconfigure their investments based on market volatility is what we do. For more advice, contact us today.

This article is prepared by Pekin Hardy Strauss, Inc. (“Pekin Hardy,” dba Pekin Hardy Strauss Wealth Management) for informational purposes only and is not intended as an offer or solicitation for business. The information and data in this article does not constitute legal, tax, accounting, investment, or other professional advice. The views expressed are those of the author(s) as of the date of publication of this article and are subject to change at any time due to changes in market or economic conditions. Pekin Hardy cannot assure that the strategies discussed herein will outperform any other investment strategy in the future.


  1. U.S. Bureau of Labor Statistics.
  2. U.S. Department of the Treasury.