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 ?
TIPS ETF (SCHP), Vanguard Short-Term Inflation-Protected Securities ETF (VTIP), and the SPDR Gold Trust (GLD) accounted for nearly half of inflows and suggested hedging against inflation had become an investor concern.
lender) receives at maturity for these Inflation-Protected Securities, or TIPS, increases with inflation.
The balance of Treasury financing requirements will be met with the weekly bill auctions, cash management bills, the monthly note and bond auctions, the February 30-year Treasury Inflation-Protected Securities (TIPS) auction, the March 10-year TIPS reopening auction, the April 5-year TIPS auction, and the regular monthly 2-year Floating Rate Note (FRN) auctions.
10-year Treasury Inflation-Protected Securities inflation breakeven rate.
Then, in the five years preceding participants’ retirement, or once they have entered it, TDFs should switch from higher-risk fixed-income vehicles to cash and inflation-protected securities. “For a person in retirement, 75% in fixed income is a safe haven,” Gilliam says.
The income portion of the glidepath is delivered through Northern Trusts active fixed income strategies, and the inflation-sensitive investments include commodities, global real estate and Treasury Inflation-Protected Securities (TIPS).
"We believe that US Treasury Inflation-Protected Securities (TIPS) will outperform Treasury bonds, as actual inflation will exceed the break even rate," he said.
Other conservative choices plan sponsors may consider are Treasury inflation-protected securities (TIPS), Evens says.
The five-year break-even rate, or the difference between yields on five-year notes and comparable Treasury Inflation-Protected Securities, was little changed at 1.51 percentage point, the most since Nov.
Longer-term inflation forecasts, as measured through TIPS (Treasury inflation-protected securities), were basically unaffected by the FOMC's (surprising) December decision to taper asset purchases.
These include Treasury Inflation-Protected Securities, commodities, and infrastructure (companies that provide the foundation of basic services, facilities and institutions upon which the growth and development of a community depends).
large-cap stocks and inflation-protected securities and increases it slightly in mid-cap stocks, emerging market equities, and commodities.

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