The first U.S.-based global international Treasury Inflation-Protected Securities exchange-traded fund launched on Wednesday, opening exposure for investors to TIPS in 18 different countries and 15 different currencies.

The SPDR DB International Government Inflation-Protected Bond ETF (AMEX: WIP) includes TIPS issued in developed foreign markets. But about 30% of its portfolio also comes from emerging markets.

"Inflation is even more of an issue in many emerging markets than most developed countries," said Roger Nusbaum, a portfolio manager at Your Source Financial in Phoenix. "And even developed markets like Australia face inflation issues."

Fast-growing emerging markets such as Turkey and commodities-based markets such as South Africa and Brazil in particular are battling inflation, he added. All are included in WIP's portfolio.

Another global TIPS ETF launched last year: the db trackers II iBoxx Global Inflation-Linked Total Return Index Hedged ETF (LUX: DE). But the Deutsche Bank ETF is only offered in Europe and includes exposure to U.S. issues.

WIP has 47 different holdings with mostly A-rated and above credit quality. The average life of those bonds are listed at 9.06 years, although a portfolio duration total won't be known until the ETF has more of a history.

The fund follows the Deutsche Bank Global Government ex-U.S. Inflation Linked Bond Capped Index. In the past 12 months, that benchmark has returned 20.9%. About 12% of those gains were currency-related and another 5% was associated with inflation adjustments. Another 2% came from coupon interest payments. Less than 1% came from price appreciation.

"So for U.S. investors, currency diversification is a key factor for WIP," said Tom Anderson, head of ETF research at Boston-based State Street Global Advisors.

Flight To Quality

The real yield on WIP is around 2.01%, reflecting a worldwide flight to quality as credit markets continue to struggle from the U.S.-led mortgage meltdown. Still, that's about the same yield as SSgA's domestic TIPS ETF, The SPDR Barclays Capital TIPS (AMEX: IPE).

Both tend to be longer-duration in nature. So does iShares Lehman TIPS Bond ETF (NYSE: TIP). But its real yield is running about 0.77% right now.

In the U.S., yields are at relatively low levels, as demand for TIPS has driven prices up in the past five years. But since yields move in the opposite direction as price, interest payments on TIPS have been going down.

Right now, the real yield—or the amount you get paid in interest before any inflation adjustment is added—has been negative on TIPS. Last week, it moved up slightly on five-year U.S. TIPS.

It's important to note that real yields, while not including any official inflation adjustments, do generally reflect market inflation expectations. That can be seen in current nominal rates. The 10-year Treasury note is yielding 3.44% while a similar-termed TIPS issue is yielding 1.10%.

The difference, or breakeven inflation rate, is running about 2.34%. That's what traders are pegging their inflation expectations at right now. In theory, if inflation runs above that rate, it would provide TIPS owners with greater total returns than noninflation-adjusted Treasuries.

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