What are TIPS?

Drafted with AI assistance from official sources; checked against the sources listed below.

TIPS, Treasury Inflation-Protected Securities, are notes and bonds of 5, 10 and 30 years whose principal rises and falls with the consumer price index. They pay a fixed coupon, twice a year, on that adjusted principal.

What the auction sets

Bidders bid a real yield: what the security earns on top of inflation. As in any single-price auction, every winning bidder gets the high yield. At a new issue, the coupon is set from the high yield, rounded down to the nearest eighth of a percentage point. At a reopening the coupon stays, and the yield sets the price instead.

How the principal moves

Each day the principal is the original amount times the index ratio: the price index on that day divided by the index on the security's dated date. At maturity the holder gets the adjusted principal or the original amount, whichever is more. The guide to reading a TIPS auction result works through one result line by line.

What it does not tell you

• What a TIPS will pay in total. That depends on inflation until it matures, and 500metrics publishes no inflation forecast.
• How a TIPS yield compares with a nominal note's. A real yield leaves inflation out, so the two are different measures.