Treasury Inflation Protected Securities, or TIPS, are the best known and most popular way for bond holders to protect against inflation. But nowadays there’s a better choice: special inflation-linked corporate bonds.

To be sure, the bond market has never been the first choice of investors during periods of inflationary pressures. Rising inflation almost always led to rising interest rates and lower bond prices, as investors demanded increased compensation for the erosion of values.

TIPS give bond investors a safe and viable vehicle in which to invest money during periods of rising prices. Guaranteed by the full faith and credit of the U.S. Treasury, these securities are a hedge against inflation because their principal value increases at the same rate as the Consumer Price Index (CPI).

Each semi-annual interest payment, and the principal value ultimately received at maturity, is determined by the sum total of the CPI adjustments that take place over the life of the bond. This structure, in theory, makes TIPS an excellent safeguard against inflation.

For the past year TIPS have turned in robust, 10%-plus total returns. The tick up in the CPI stimulated demand for inflation-protection securities, while the credit crisis induced a flight to the safety of Treasury-backed instruments.

The net result: TIPS prices have soared. Reflecting the recent appreciation in prices, a five-year TIP currently yields a mere 0.77%. Twelve months ago, yields were north of 2%. Buying a five-year bond yielding 0.77% is outrageous. There are far more attractive alternatives.

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A colonel in the U.S. Air Force argued in a recent opinion piece that the United States needs to build its own collection of computers able to digitally “carpet bomb” enemies with a denial-of-service attack.

The capability to overwhelm attackers would help the nation deter attacks against its systems, Col. Charles Williamson III, a staff judge advocate for the U.S. Air Force Intelligence, Surveillance and Reconnaissance Agency, stated in an opinion piece in the Armed Forces Journal. Military bases could use outdated PCs as nodes on its “botnet,” replacing their hard drives with a simple flash drives.

“America needs the ability to carpet bomb in cyberspace to create the deterrent we lack,” Col. Williamson wrote. “America faces increasingly sophisticated threats against its military and civilian cyberspace. At the same time, America has no credible deterrent, and our adversaries prove it every day by attacking everywhere.”
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