TheStreet.com reported a research paper written by three economists at UCLA saying that TIPS are a bad deal for the government compared to regular Treasuries.
Government Keeps Losing With TIPS
"Treasury bonds are almost always overvalued relative to TIPS. Total TIPS-Treasury mispricing has exceeded $56 billion, representing nearly 8% of the total amount of TIPS outstanding."
If they are a bad deal for the government, investors are getting a good bargain in TIPS.
A typical total bond market type of mutual fund or ETF (Vanguard VBTLX, iShares AGG) has at least 1/3 in regular Treasuries. If you believe the findings of this research, instead of investing in a mutual fund or ETF that includes regular Treasuries, pair up TIPS with an investment grade corporate bond fund or ETF. You get the same exposure and a better value.
Meanwhile, some other economists say that TIPS are still a good deal to the government and by implication investors leave money on the table for the inflation protection.
Economists almost always have different opinions on everything. Which economists are right about TIPS? I'm not qualified enough to judge. Instead of all-or-nothing, I think it's prudent to include TIPS as a part of one's bonds investment.
Christensen, Jens and James Gillan, Has the Treasury Benefited from Issuing TIPS?, Federal Reserve Bank of San Francisco Economic Letter 2011-12
Fleckenstein, Mathias, Francis A. Longstaff, and Hanno Lustig, Why Does the Treasury Issue TIPS? The TIPS-Treasury Bond Puzzle, NBER Working Paper 16358