Treasury Inflation-Protected Securities (TIPS)

Motley Fool  Jun 13  Comment 
Treasury Inflation-Protected Securities, or TIPS, are a type of government bond that come with built-in inflation insurance.
MarketWatch  Mar 28  Comment 
In the latest sign that investors were too eager to trumpet the return of inflation after a yearslong slump, the spread between the 10-year nominal Treasury yield and the yield on the 10-year Treasury inflation-protected security has dropped back...
Motley Fool  Mar 8  Comment 
These inflation-fighting investments are often misunderstood. Get the full scoop here.


Treasury Inflation-Protected Securities, or TIPS, are bonds issued by the US Treasury which provide investors with protection against inflation. They are offered in maturities of 5, 10 and 20 years.

The principal on these securities are adjusted based on the Consumer Price Index, which is a measure of inflation. For example: Suppose inflation rate is 2%. If an investor bought TIPS worth $1000 and held it for a year, his principal would have grown by 2% to $1020.

Upon maturity, the TIPS pay back the adjusted principal or the original principal, whichever is greater. TIPS also pay interest twice a year at a fixed rate. However, the interest is paid on the adjusted principal, and as a result increases with inflation and decreases with deflation.[1]

TIPS are useful in determining the expected inflation. The difference between the yield of normal Treasury bonds and the yield of TIPS is a good indicator of the market's inflation expectation.

TIPS can be bought from Treasury Direct.


  1., Retrieved November 17, 2008


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