Document Type

Blog Post

Publication Date

4-27-2015

Contents

Treasury Inflation Protected Securities, or TIPS, offer investors a lower coupon rate; however, in exchange, investors receive protection against the negative impact of inflation. Higher inflation leads to a loss in purchasing power, as well as higher interest rates, which reduce bond prices. The inflation protection offered by TIPS offsets these impacts by increasing the face value (called the accrued principal) in line with inflation, meaning that periodic coupon payments rise with inflation, as does the return of principal at maturity. See this Bloomberg article for a discussion of why TIPS are back in favor.

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