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BlackRock Launches Ultra-Short TIPS ETF for Inflation Protection Without the Pain

MarketDash Editorial Team
13 days ago
The new iShares 0-1 Year TIPS Bond ETF delivers CPI-linked adjustments and monthly cash distributions while sidestepping the interest rate volatility that crushed longer-dated inflation bonds in 2022.

BlackRock is rolling out a new take on inflation protection, and this one's designed for investors who remember 2022 a little too well. The iShares 0-1 Year TIPS Bond ETF (ICPI) targets CPI-linked returns while avoiding the brutal rate sensitivity that hammered longer-dated Treasury Inflation-Protected Securities when yields went haywire.

Short Duration, Less Drama

According to the fund prospectus, ICPI tracks the ICE U.S. Treasury 0-1 Year Inflation-Linked Bond Index, which holds TIPS with maturities ranging from one month to one year. The index carries an effective duration of just 0.48 years, placing it at the extreme short end of the TIPS market where interest rate moves historically inflict far less damage.

That matters because 2022 taught the TIPS market an expensive lesson. Inflation surged 6.5% that year, but the broad TIPS index still dropped 12% as real yields spiked, per the fund documents. Meanwhile, 0-1 year TIPS quietly posted a positive 3% return. That performance gap is exactly what ICPI's mandate aims to capture going forward.

Monthly Payouts That Actually Make Sense

The fund distributes monthly, including the inflation adjustment that gets applied to its underlying holdings. Since TIPS principal adjusts with CPI, the ETF structure solves a frustrating quirk for individual TIPS buyers: phantom income. That's the taxable inflation adjustment traditional bondholders owe taxes on each year but don't actually receive as cash until maturity. ICPI distributes that adjustment as cash every month, so your tax liability matches your cash flow.

Those payments follow the Treasury's lagged CPI schedule, meaning January inflation feeds into March TIPS accruals and gets distributed by the ETF on April 1. In practice, the fund reflects CPI with a built-in two-month delay.

The Fine Print

ICPI charges 0.09% and uses representative sampling, holding only a subset of index-eligible TIPS with at least $300 million outstanding. BlackRock also notes the fund may skip distributions, or distribute less, during deflationary months, mirroring how TIPS principal declines when prices fall.

Inflation remains elevated compared to pre-pandemic norms, and rate volatility isn't going anywhere. ICPI enters the market as a targeted, low-duration option for investors who want CPI protection without strapping themselves to the full TIPS curve and all its mood swings.

Back to News

BlackRock Launches Ultra-Short TIPS ETF for Inflation Protection Without the Pain

MarketDash Editorial Team
13 days ago
The new iShares 0-1 Year TIPS Bond ETF delivers CPI-linked adjustments and monthly cash distributions while sidestepping the interest rate volatility that crushed longer-dated inflation bonds in 2022.

BlackRock is rolling out a new take on inflation protection, and this one's designed for investors who remember 2022 a little too well. The iShares 0-1 Year TIPS Bond ETF (ICPI) targets CPI-linked returns while avoiding the brutal rate sensitivity that hammered longer-dated Treasury Inflation-Protected Securities when yields went haywire.

Short Duration, Less Drama

According to the fund prospectus, ICPI tracks the ICE U.S. Treasury 0-1 Year Inflation-Linked Bond Index, which holds TIPS with maturities ranging from one month to one year. The index carries an effective duration of just 0.48 years, placing it at the extreme short end of the TIPS market where interest rate moves historically inflict far less damage.

That matters because 2022 taught the TIPS market an expensive lesson. Inflation surged 6.5% that year, but the broad TIPS index still dropped 12% as real yields spiked, per the fund documents. Meanwhile, 0-1 year TIPS quietly posted a positive 3% return. That performance gap is exactly what ICPI's mandate aims to capture going forward.

Monthly Payouts That Actually Make Sense

The fund distributes monthly, including the inflation adjustment that gets applied to its underlying holdings. Since TIPS principal adjusts with CPI, the ETF structure solves a frustrating quirk for individual TIPS buyers: phantom income. That's the taxable inflation adjustment traditional bondholders owe taxes on each year but don't actually receive as cash until maturity. ICPI distributes that adjustment as cash every month, so your tax liability matches your cash flow.

Those payments follow the Treasury's lagged CPI schedule, meaning January inflation feeds into March TIPS accruals and gets distributed by the ETF on April 1. In practice, the fund reflects CPI with a built-in two-month delay.

The Fine Print

ICPI charges 0.09% and uses representative sampling, holding only a subset of index-eligible TIPS with at least $300 million outstanding. BlackRock also notes the fund may skip distributions, or distribute less, during deflationary months, mirroring how TIPS principal declines when prices fall.

Inflation remains elevated compared to pre-pandemic norms, and rate volatility isn't going anywhere. ICPI enters the market as a targeted, low-duration option for investors who want CPI protection without strapping themselves to the full TIPS curve and all its mood swings.