Even Treasury Inflation Protection Securities - pretty tame as investments go - haven't escaped market ugliness. But now that they've been beaten down, they look attractive for long-term investors.
As their name implies, TIPS are government bonds that pay guaranteed interest plus extra principal, depending on what happens to the Consumer Price Index.
Only a few months ago, everybody wanted inflation protection. (Remember $140 oil?) TIPS were so expensive their yield nearly disappeared. (Yield and price move in opposite directions.) Investors wanted inflation insurance so badly that they didn't care if they barely collected any interest.
But TIPS got hammered starting in September, when the accelerating credit collapse prompted economists to begin talking about deflation (consistently falling prices) rather than inflation. Since the end of August, T. Rowe Price's TIPS mutual fund has fallen more than 10 percent, a huge move for a bond fund.
The result, however, is that the bonds again have a decent interest yield along with the inflation protection. The yield is close to 3 percent for TIPS that don't mature until years from now and even more for short-dated issues.
As a result, inflation protection is cheaper than it has been in some time. And with the world's governments trying to douse the credit disaster by pumping out money, inflation, not deflation, is a good bet for the long term.