Definition of Treasury Inflation-Protected Security (TIPS)

Financial Terms Beginning with T

What is a Treasury Inflation-Protected Security (TIPS)

A Treasury inflation-protected security (TIPS) is a US government debt-obligation that will adjust for inflation. TIPS have maturities of 5, 10 and 30 years

The inflation component, which affects principal, is based upon the Consumer Price Index (CPI), where it adjusts upward for inflation or downward for deflation. The adjustment will impact the semi-annual interest paid and the principal at maturity. Since TIPS principal adjusts semi-annually, the coupon rate varies as well.

At maturity, a TIPS will pay the greater of the adjusted or original principal. The inflation provision protects the investor from the loss of any principal in the event of a sustained period of deflation.

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Related Investment Terms

Treasury Bill (T-Bill)

Treasury Bond (T-Bond)

US Government Bond

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