BONDS are not typically the best asset class if there is unexpected inflation, but one type of bonds which investors use to keep pace with the inflation rate is the Treasury Inflation-Protected Securities (Tips).
Tips are a type of US Treasury security, but unlike traditional Treasuries where their principal or par value remains fixed, the principal value of Tips is pegged to the rate of inflation. When inflation rises, Tips principal value is adjusted up. If there is deflation, then the principal value is adjusted lower.
Thus, they will always give investors the same percentage return adjusted for inflation over the life of the bond. And like traditional Treasuries, Tips are backed by the US...
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