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.
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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.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

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.

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References in periodicals archive ?
Treasuries and neutral on Treasury Inflation-Protected Securities (TIPS), which it noted can be a "good choice" for investors looking to protect their portfolios from rising inflation because inflation expectations are firming.
For inflation protection, Vanguard's target-date funds use Treasury inflation-protected securities (TIPS) in the later stages of an investor's life cycle, he says.
Inflation expectations continue to be contained, as indicated by the difference between the yield on 10-year Treasury bonds and the yield on Treasury inflation-protected securities (TIPS) of the same maturity.
Investors can use Treasury Inflation-Protected Securities (TIPS) and Series I Savings Bonds as ways of preserving capital against inflation.
government bonds, Treasury inflation-protected securities (TIPS) and short-term bonds.
One way to separate the two is to compare the rate on Treasury inflation-protected securities (TIPS), which measures the real rate, with ordinary nominal bond rates, which contain a premium for expected inflation.
The financial advisor sees 1-month Treasury bills, 10-year Treasury notes and 30-year Treasury inflation-protected securities, respectively, as averaging 0.1% real (2.1% nominal); 1.9% (3.9%); and 2.6% (4.6%).
Long-term inflation expectations can be estimated by subtracting yields on real Treasury inflation-protected securities (TIPS) from yields on nominal Treasuries.
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.
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.

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