TIPS and Treasurys Were Flat in 26Q1 Despite Rising Inflation
Treasury Inflation-Protected Securities (TIPS) were flat in the 2026 first quarter, essentially in line with the 0.1% average gain on comparable maturity straight Treasurys. The return on TIPS was composed of an estimated price decline of 39 basis points (bp), partially offset by interest income of 52 bp and an inflation adjustment of -11 bp.
TIPS outperformed Treasurys in the short- and intermediate maturities, but underperformed in the long maturities. The relative performance difference for TIPS was +70 bp in the short maturities, +40 bp in the intermediates and -160 bp on the long maturities, according to my calculations.
The average TIPS yield ended the quarter at 1.44%, down 64 basis points (bp) from 2.08% at the end of the 2025 fourth quarter. TIPS yields fell 174 bp in the short maturities (where yields are subject to sharp swings on modest price moves), and 5 bp in the intermediates, but rose 8 bp in the long maturities. Average straight Treasury yields ended the quarter at 4.22%, up 21 bp from 4.01% in 25Q4. Short-maturity Treasury yields rose 27 bp, intermediates rose 20 bp and long maturities rose by 8 bp. With these relative yield changes, the average breakeven spread increased by 86 bp from 193 bp at December 31, 2026 to 279 bp at March 31. The increase in spreads was most pronounced in the short maturities, where the average spread rose by 200 bp. Intermediate spreads increased by 25 bp and long maturity spreads decreased 1 bp.
The CPI inflation adjustment was -11 bp, down from 44 bp in 25Q4, as headline inflation was estimated to have been slightly negative. Despite the negative CPI print, investors bid up the prices of short-term TIPS in anticipation of a higher future payout associated with the rise in inflation associated with the sharp increase in oil prices as a consequence of the closing of the Strait of Hormuz.
This quarter’s TIPS vs. Treasurys performance in the long end was affected by losses realized by investors who bought the 30-year TIPS and 30-year Treasurys that were issued on February 27, 2026. My calculations show that the 30-year TIPS, the 2.375% TIPS due February 15, 2056, posted an annualized loss of nearly 4.5 points in March, which works out to an annualized loss of 45.4%. The comparable maturity 30-year Treasury, the 4.75% Treasury Bond due February 15, 2056, posted a 2.8 point loss in March, which equates to a 24.2% annualized loss.
I employ an equal-weighted methodology in calculating returns on the TIPS sector and on the three maturity bands – short, intermediate and long. An annualized loss of that magnitude can have an impact on returns, especially in this case in the long-term maturities. By my calculations, if the 2.375% TIPS due 2056 are excluded from the calculations, the loss on long-term TIPS would have been -1.1%, rather than -1.7% and the return on all TIPS would have been +0.2%, rather than +0.1%.
As noted, TIPS yields fell by 67 bp on average. The TIPS yield curve shifted downward sharply across the shortest maturities, with the decline tapering out through the intermediate maturities. Long-term TIPS yields rose by 8 bp. Long yields are now at their highest in more than a decade.
Since the end of 2025, the U.S. Treasury yield curve has shifted upward, with the greatest increases across the 1-5 year maturities. Short term yields rose modestly in response to a likely pick-up in inflation from the sharp rise in oil prices. However, long-term yields increased only slightly. This suggests that investors anticipated that the rise in inflation would be transient, as inflation would drop once the conflict between the U.S. and Iran was resolved.
The quarterly TIPS inflation adjustment was -0.11% in 26Q1, down from +0.79% in 25Q4. Despite the decline in the inflation adjustment, investors bid up the prices of short-maturity TIPS, anticipating that the inflation adjustment would rise along with the price of oil. In fact, the 26Q2 adjustment will be 2.39%, the highest since 22Q3, but this will likely prove to be temporary, at least in the short run, assuming that inflation will ease with a resolution of the conflict in the Middle East.
The breakeven rate or spread, a measure of longer-term inflation expectations, increased 87 bp in 26Q1 from 193 bp to 280 bp. The increase was greatest across the short maturities, where spreads rose by 200 bp to 345 bp. Intermediate spreads increased by 25 bp to 249 bp. Long-term spreads decreased by 1 bp to 228 bp.
For the two months ended May 31, 2026, my estimates show that TIPS earned a positive return of 1.1%, while comparable maturity straight Treasurys were essentially flat with a decline of 0.1%. TIPS earned positive returns across all maturities, with gains of 0.9% on the short end, 1.0% in the intermediates and 1.6% on the long end, while Treasurys had a 0.3% gain on the short-end and declines of 0.1% in the intermediates and -0.4% on the long-end. TIPS yields increased from 1.4% to 1.7%, while Treasury yields rose from 4.2% to 4.4%. The average breakeven spread declined slightly from 279 bp to 269 bp. As noted above, the TIPS adjustment for all of 26Q2 will be 2.39%.
The results show investors seeking more protection from inflation in the weeks before the announced agreement with Iran to end the conflict. With about two weeks to go in June, my next report with the full figures for the 26Q2 quarter will be available in early July.
June 17, 2026
Stephen P. Percoco
Lark Research
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© 2015-2026 by Stephen P. Percoco, Lark Research. All rights reserved.
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