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TIPS: inflation-protected Treasuries
Since 1997· Asset or instrument
Fact, law or dataA rule, statute, definition or measured number.
TIPS are Treasury bonds whose principal rises with consumer prices, so their interest and repayment keep pace with inflation.
See it on the Money & Finance map →How it works
First auctioned in January 1997, TIPS come in 5-, 10- and 30-year terms. Each month the principal is adjusted by the CPI-U price index, with about a 3-month lag; the fixed coupon is paid on that adjusted amount. At maturity you get the larger of the adjusted or original principal, so deflation cannot cut it. Their yield is a 'real' yield, after inflation, around 2% in 2024–25. Market prices still swing: TIPS fell in 2022 as real yields jumped.
Why it matters
They are the only marketable Treasury that directly insures against inflation, and comparing their yields with regular Treasuries shows the inflation rate markets expect.
Think of it like
Like a lease with a CPI escalator: the rent, and the building's income, rise with inflation.
Facts, rules and data
Treasury auction records and published index ratios. About $2 trillion are outstanding. Investors buy at TreasuryDirect or via a broker, or own TIPS funds; the yearly inflation adjustment is taxed even before it is paid.
Debates and risks
Whether TIPS are cheaper for taxpayers than regular debt, and how much their thinner trading distorts the inflation forecasts read from them, is debated.
Connections (2)
▸TIPS: inflation-protected Treasuries protect against Inflation: rising prices, shrinking purchasing powerFact, law or data
The connection
Each month a TIPS bond's principal is multiplied by the change in the CPI-U price index. If prices rise 3% in a year, $1,000 of principal becomes about $1,030, and the fixed coupon is paid on the larger amount. Held to maturity, the investor keeps purchasing power; the market price can still fall if real yields rise.
When and why
Since the first TIPS auction in January 1997; the Treasury uses the BLS's CPI-U with roughly a three-month lag.
How we know
Treasury publishes the reference CPI and index ratio for every TIPS daily; payouts follow the published formula.
Debates and risks
Whether the CPI matches a given investor's costs, such as rent or health care, and whether taxes on the inflation adjustment erode the protection.
▸TIPS: inflation-protected Treasuries are inflation-indexed US Treasury securitiesFact, law or data
The connection
TIPS are a Treasury type, sold in 5-, 10- and 30-year terms, whose principal is indexed to inflation. They are about 7% of marketable debt. Because they trade next to ordinary Treasuries, the yield gap between the two, the 'breakeven', shows the average inflation investors expect.
When and why
First auctioned in January 1997 under Treasury Secretary Robert Rubin, following Britain's index-linked gilts (1981) and using the design of Canada's Real Return Bonds (1991).
How we know
Treasury auction records; the Fed and FRED publish daily breakeven inflation rates from TIPS and regular Treasury yields.
Debates and risks
TIPS trade less actively than regular Treasuries, which may distort breakevens; whether they save or cost the Treasury money is debated.