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$39 Trillion Debt Signal: 3 TIPS ETFs to Hedge Persistent Inflation

Authored by Chris Markoch. Publication Date: 4/19/2026.

A recent report from the U.S. Treasury Department received less attention than it deserves. The "2025 Financial Report of the United States Government" showed the gross national debt as of Sept. 30, 2025 was $37.6 trillion. Real-time tracking released in April updates that figure to roughly $39 trillion.

That number is hard to grasp, but for investors there is an important signal about inflation that shouldn't be ignored. This isn't alarmist rhetoric—it's math. In 2025, the federal government paid approximately $970 billion in interest on its debt—more than the entirety of the widely publicized defense budget. As the debt grows, interest costs will rise as well.

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That dynamic gives the U.S. government both motive and ability to tolerate modestly higher inflation. It's one reason economists and government officials often differ on the appropriate path for interest rates. The most likely catalyst for rate cuts may not be a slowing economy; it could be roughly $10 trillion in debt maturing in 2026 that must be refinanced at whatever rates the market will demand.

For investors, this argues for preparing now for the possibility of higher inflation later.

The Case for Inflation-Protected Securities

Since 2022 the Federal Reserve has largely focused on tamping down inflation. That allowed long-term interest rates (for example, 10-year Treasury notes) to rise above short-term rates (for example, two-year Treasury notes). However, when the Fed begins cutting rates—as it started to do in 2024—the yield curve tends to flatten.

The wild card is inflation, which appears to be structurally elevated. The central bank's target is 2%, but current readings are closer to roughly 2.8%–3%. If policymakers prefer inflation to run a bit hotter, a 3% environment becomes financially convenient: it lowers the real debt burden and reduces real interest costs.

Using inflation as a fiscal tool is not unprecedented. The most recent example was the post–World War II period, when inflation helped erode wartime debt burdens.

If that approach gains traction again, Treasury Inflation-Protected Securities (TIPS) become a sensible choice for investors seeking to stay ahead of inflation. It's also why Series I Savings Bonds were so popular in 2022. But I bonds have limits, including a $10,000 annual purchase cap and a one-year lock-up period.

That is why ETF offerings tied to TIPS can serve as practical inflation hedges for portfolios. Investors should consult their financial planner or tax professional to determine which, if any, of these investments are appropriate for their situation.

SCHP: The Core Holding for Broad TIPS Exposure

For investors who want straightforward inflation protection without making a specific duration bet, the Schwab U.S. TIPS ETF (NYSEARCA: SCHP) is a logical choice. The fund tracks the Bloomberg U.S. Treasury Inflation-Protected Securities Index and holds TIPS across short, intermediate and long maturities.

Here's why that matters. When the Consumer Price Index (CPI) rises, the principal of each underlying TIPS bond adjusts upward. Interest payments are calculated on that adjusted principal, so income rises with inflation. It's a dual-protection mechanism that nominal Treasury notes do not provide.

With an expense ratio of just 0.05%, SCHP is a low-cost way to gain that exposure. The tradeoff is duration risk: with an effective duration around 6.5 years, rising real interest rates will pressure the fund's price. For investors who believe inflation will remain structurally elevated while the Fed eventually cuts rates, that tradeoff may be acceptable.

VTIP: The Conservative Play for Rate-Sensitive Investors

Not all investors are willing to accept meaningful duration risk while waiting for Fed rate cuts. For those who expect inflation to stay elevated but are uncertain about the timing of a Fed pivot, the Vanguard Short-Term Inflation-Protected Securities ETF (NASDAQ: VTIP) offers a more defensive way to express the same thesis.

VTIP focuses on TIPS maturing within zero to five years, keeping its weighted average maturity near 2.5 years. That shorter duration makes the fund far less sensitive to changes in real interest rates than a broad TIPS fund like SCHP. If real rates rise before the Fed pivots, VTIP will suffer much less price damage.

The inflation-protection mechanism is identical: principal adjusts with CPI and income follows. Because its bonds mature quickly, VTIP can reinvest into newly issued TIPS at current real yields, giving it a natural repricing advantage in a rising-rate environment.

Its expense ratio of 0.07% is only slightly higher than SCHP's and remains negligible for most investors. VTIP is well suited to those who want to hedge inflation now without committing to a long-duration view. Think of it as the defensive lineman of the TIPS lineup: built to hold the line rather than chase upside.

LTPZ: The High-Conviction Bet on Persistent Inflation

If VTIP represents the conservative end of the TIPS spectrum, the PIMCO 15+ Year U.S. TIPS ETF (NYSEARCA: LTPZ) sits at the other extreme. The fund holds TIPS with maturities longer than 15 years, giving it one of the longest durations available to retail investors—currently well above 20 years—so its price moves substantially with changes in real interest rates.

This ETF is appropriate only for investors with a high risk tolerance. Long-duration TIPS are the most leveraged expression of the financial-repression thesis: if inflation persists at 3% or higher while the Fed eventually cuts rates to ease the refinancing burden on roughly $10 trillion in maturing debt, long real yields could compress sharply. In that scenario, LTPZ could benefit from both inflation adjustments to principal and strong price appreciation as real rates fall.

The downside is equally real. If real rates continue rising before any Fed pivot, LTPZ can decline dramatically—its worst periods, including 2022, produced double-digit losses. For that reason, it should be used only as a high-conviction satellite position by investors who have a clear macro view and the stomach to endure significant volatility.