Treasury Inflation Protected Securities

Treasury Inflation Protected Securities (TIPS)

What Does Treasury Inflation Protected Securities (TIPS) Mean?

Refers to a Treasury note or bond that is adjusted for inflation. Like other Treasuries, an inflation-indexed security pays interest every six months and pays the principal when the security matures. The difference with TIPS is that the coupon payments and underlying principal are increased automatically to compensate for inflation as measured by the consumer price index (CPI). Also referred to as Treasury inflation-indexed securities.

Investopedia explains Treasury Inflation Protected Securities (TIPS)

If U.S. Treasuries are the world's safest investments, one might say that TIPS are the safest of the safe. This is the case because the real rate of return, which represents the growth of the investor's purchasing power, is guaranteed. The downside is that because of that safety, TIPS offer very low interest rates. Other countries have similar securities. For example, TIPS in Canada are called real return bonds (RRB).

Related Terms:
• Consumer Price Index—CPI
• Government Security
• Inflation
• Interest Rate
• Real Rate of Return