In a small saucepan, bring the vinegar, tarragon sprigs, shallots, and pepper to a boil. Let reduce by half. Strain through a fine sieve.
In a bowl over a pan of simmering water, whisk the vinegar reduction and egg yolks until the light and fluffy.
Remove the bowl from the double boiler. Off the heat, drizzle in the butter, whisking constantly. Add the chopped tarragon and cold water. Season with salt and pepper. Keep aside at room temperature. Reheat on top of the double boiler, over simmering water whisking just for a few seconds, just before serving.
Serve with red meat, such as a roast or prime rib.
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