Inflation-protected security

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Inflation-Protected Security

A bond that protects the bondholder from inflation. Most bonds pay a fixed coupon rate periodically and mature at par. While this carries low risk, it exposes investors to the possibility that the inflation rate will outpace the interest rate represented on the coupon. In order to protect against this, an inflation-protected security automatically increases its principal according to the inflation rate. Thus, while the coupon rate does not increase, the dollar amount paid does. Because an IPS is so safe, it offers a very low rate of return. See also: Real Return Bond, TIPS.

Inflation-protected security (TIPS).

US Treasury inflation-protected securities (TIPS) adjust the principal twice a year to reflect inflation or deflation measured by the Consumer Price Index (CPI).

The interest rate is fixed and is paid twice a year on the adjusted principal. So if your principal is larger because of inflation you earn more interest. If it's lower because of deflation, you earn less.

You can buy TIPS with terms of 5, 10, or 20 years at issue using a Treasury Direct account or in the secondary market. At maturity you receive either the adjusted principal or par value, whichever is greater.

You owe federal income tax on the interest you earn and on inflation adjustments in each year they're added even though you don't receive the increases until the security matures. However, TIPS earnings are exempt from state and local income taxes.

These securities provide a safeguard against deflation as well as against inflation since they guarantee that you'll get back no less than par, or face value, at maturity.

References in periodicals archive ?
The website provides information and instructions for opening an on-line account to buy electronic savings bonds and Treasury marketable securities: bills, notes, bonds, Floating Rate Notes (FRNs), and Treasury Inflation Protected Securities (TIPS).
It also initiated ratings on 14 funds, only one of which merited Gold: Vanguard's Short-Term Inflation Protected Securities ETF.
But now it increasingly seems as if those funds are coming from pure safe-haven accounts, such as money market funds and Treasury Inflation Protected Securities, or TIPS funds.
representatives from the agency were asked whether investment regulations might be broadened to allow credit unions to purchase Treasury Inflation Protected Securities.
NEW YORK: Global prices are poised to climb during the next three to five years as developed nations seek to reduce debt burdens, favouring Treasury Inflation Protected Securities, according to Pacific Investment Management Co.
These, say the bank, will be the first ETNs to give investors the opportunity to take long or short exposure to changes in the market's expectations of future inflation implied by the difference in yields between a notional long or short position in US Treasury Inflation Protected Securities (TIPS), and an offsetting notional position in US Treasury Bonds with approximately equivalent terms to maturity.
Treasuries come in various forms, namely bills, notes, bonds and inflation protected securities, and are either traded on the secondary market or issued to subscribers.
In terms of owning inflation protected securities (TIPS), we find that at current price levels they offer absolutely no protection against further increases in the US inflation rate.
An MOF official remarked that price-indexed bond is a kind of treasury inflation protected securities (TIPS), with a face value which can be adjusted along with change in consumer price index (CPI).
This product is Treasury Inflation Protected Securities.
It describes current debt management challenges and examines the role of a program that could benefit Treasury--Treasury Inflation Protected Securities (TIPS).
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