Inflation fighters

With annual inflation near 5 percent, demand for Treasury Inflation-Protected Securities (TIPS) is high, pushing the 10-year yield down to 1.5 percent from above 2 percent this year. But there are more profitable ways to hedge against rising prices.

Christopher Burdick, economic analyst at Charles Schwab & Co., says the global commodities demand that stirred inflation is subsiding. "We're seeing evidence that growth is slowing in emerging markets such as China and India." He likes investment-grade corporate bonds, noting "the prices of many have fallen in the midst of credit-market uncertainty, lifting yields to abnormally high levels."

For those who want an inflation hedge and good yields, Marilyn Cohen, president of Envision Capital Management, suggests inflation-protected corporate bonds. HSBC Finance's five-year note, for example, yields 5.35 percent. Like TIPS, coupons are linked to the Consumer Price Index but interest is paid monthly. "I like them better for retail investors because you get a real income stream," she says.

She warns many issuers are in the weak financial sector. Of the 15 on InterNotes.com, 12 are financials. Caterpillar and Dow Chemical have also issued these inflation-protected notes.