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Glossary

TIPS

Category — US Bond Market
Treasury Inflation-Protected Securities (TIPS) are a type of U.S. government bonds protected against inflation. TIPS inflation protection mechanism provides for indexation of bond face value by Consumer Price Index (CPI); thus, when CPI rises, TIPS face value increases progressively and when CPI falls, it decreases progressively, reflecting the rate of official inflation/deflation in the USA. In addition, payment of the face value of not less than the initial one is guaranteed by the state, and therefore, even in case of deflation during the entire maturity period, the holder will be paid the initial bond value and will not incur nominal losses.

On their own, TIPS have a fixed coupon rate, but this coupon rate changes due to face value indexation, which protects holders from inflation and ensures a steady level of real bond yield.

The standard TIPS face value is USD 100. The standard TIPS maturity periods are 5, 10 and 30 years.
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