Treasury Inflation-Protected Securities
Treasury Inflation-Protected Securities (TIPS) are U.S. government bonds whose principal value is adjusted for changes in the Consumer Price Index for All Urban Consumers (CPI-U), with semiannual coupon payments based on the adjusted principal; at maturity, the investor receives the greater of the original principal or the inflation-adjusted principal.
Example: A 10-year TIPS with a $1,000 par value and a 0.5% fixed coupon rate pays semiannual interest on the current principal; if CPI-U rises, the principal increases and the next coupon payment rises accordingly.
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