Treasury inflation-protected securities


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Treasury Inflation-Protected Security

A U.S. Treasury security that protects the bondholder from inflation. Most Treasury securities, like most fixed dollar obligations, 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, a Treasury Inflation-Protected Security automatically increases its principal according to the inflation rate as tracked by the Consumer Price Index. Thus, while the coupon rate does not increase, the dollar amount paid does. Because TIPS are so safe, they offer a very low rate of return. See also: Real Return Bond.

Treasury Inflation-Protected Securities (TIPS)

Negotiable bonds issued and guaranteed by the U.S. Treasury with returns that are indexed to compensate bondholders for inflation. Indexing is accomplished by adjusting the principal amount of TIPS upward to adjust for changes in the consumer price index. These securities were first issued in 1997 and represent a relatively small portion of U.S. government debt. See also Series I savings bond.

Treasury inflation-protected securities (TIPS).

TIPS, or Treasury inflation-protected securities, are inflation-indexed Treasury bonds and notes.

TIPS pay a fixed rate of interest like traditional Treasurys, but their principal, to which the interest rate is applied, is adjusted twice a year to reflect changes in inflation as measured by the Consumer Price Index (CPI). However, those increases are not paid until the end of the term.

Twice a year the interest rate is multiplied by the new principal, so the interest you receive will increase or decrease as well. Interest is federally taxable, as are any increases in the value of your principal. The interest is exempt from state and local income taxes.

At maturity, you're repaid the inflation-adjusted principal or par value, whichever is more.

References in periodicals archive ?
Reed also was surprised to find that most things people think protect them against inflation are ineffective: including precious metals, Treasury Inflation-Protected securities (TIPs), cost-of-living clauses, mindless diversification; FDIC and other types of insurance.
Long-term inflation expectations can be estimated by subtracting yields on real Treasury inflation-protected securities (TIPS) from yields on nominal Treasuries.
Given the growing number of investors expressing concern over the prospect of future inflation, the study examined the relative performance of four traditional inflation hedges - gold, real estate, Treasury Inflation-Protected Securities (TIPS) and general commodities.
The difference between the yield on Treasury inflation-protected securities (TIPS), a real rate, and the corresponding nominal rate on bonds not so protected, provides a measure of expected inflation.
He favors Treasury Inflation-Protected Securities, or TIPS, and Series I Savings Bonds, or I-Bonds.
This trust is recognized as the safest of all structured settlements as it is funded with Treasury Inflation-Protected Securities (TIPS) and can never be sold to the aftermarket factoring companies.
Treasury inflation-protected securities (TIPS), which provide one measure of a real interest rate, indicate that long-term real interest rates have fallen about 50 bp since June.
Inflation protected public obligations of the inflation-linked government bond markets of developed and emerging market countries, commonly known in the United States as Treasury Inflation-Protected Securities ("TIPS"), are securities issued by such governments that are designed to provide inflation protection to investors.

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