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Treasury Inflation-Protected Securities (TIPS)

The U.S. Treasury has been issuing Treasury Inflation-Protected Securities (TIPS) since 1997. TIPS provide investors with protection against inflation. The principal of a TIPS increases with inflation and decreases with deflation, as measured by the Consumer Price Index. (CPI-Urban, Non-Seasonally-Adjusted with a 3-month lag)

When a TIPS matures, the investor is paid the inflation-adjusted principal or original principal, whichever is greater. Since a TIPS investor won't receive less than the original principal, the investor's original principal amount is protected against deflation as well.

TIPS pay interest semiannually at a fixed rate. The rate is applied to the adjusted principal; so, like the principal, interest payments rise with inflation and fall with deflation.

Auction Frequency

  • The 5-year TIPS are auctioned in April, and as reopenings in October.
  • The 10-year TIPS are auctioned in January and July, and as reopenings in April and October.
  • 20-year TIPS are auctioned in January, and as reopenings in July. This maturity is not available in Legacy Treasury Direct starting in January 2007.
  • The reopened security has the same maturity date and interest date as the original security but has a different issue date and usually a different price.

Demand for TIPS by Investment Sector

Competitive bids 2000-present Dealers Pensions and insurers Investment Funds Foreign and international Other  
10-year TIPS 57% 1% 28% 7% 7% MEAN
10-year nominal 66% 0% 11% 13% 11% MEAN

Bidding

Auction bids for Treasury securities may be submitted as noncompetitive or competitive.

  • With a noncompetitive bid, a bidder agrees to accept the yield determined at auction. A bidder is guaranteed to receive the full amount of the security bid.
  • With a competitive bid, a bidder specifies the yield that is acceptable. This bid may be accepted in the full amount if the rate specified is less than the yield set by the auction, accepted in less than the full amount requested if the bid is equal to the high yield, or not awarded if the rate specified is higher than the yield set at the auction.

To place a noncompetitive bid, an individual investor may use TreasuryDirect. Individuals, organizations, fiduciaries, and corporate investors may use Legacy Treasury Direct, a broker, or other financial institution. The 20-year TIPS are not available in Legacy Treasury Direct.

To place a competitive bid, a bidder must use a broker, financial institution, or have an established TAAPSLink account.

Adjusting TIPS Principal

The U.S. Treasury adjusts the principal of TIPS monthly based on the change in the Consumer Price Index-Urban, Non-Seasonally Adjusted index, with a 3-month lag.  The principal of a TIPS increases with inflation and decreases with deflation.

at a glance
Original Issue Rate: The yield determined at auction.
Minimum purchase: $1,000
Maximum purchase: Non-competitive: $5 million
Competitive: 35% of offering amount
Investment Increment: Multiples of $1,000
Issue Method: Electronic

Redeem, Reinvest, or Sell

Like other marketable securities, a TIPS can be held to maturity or sold before it matures. TIPS held in Legacy Treasury Direct cannot be directly reinvested into another security. Read more information on how to redeem, reinvest, or sell.

Tax Considerations

Interest on TIPS is exempt from state and local taxes but is subject to federal tax. TIPS investors pay federal income tax on interest payments in the year they are received and on growth in principal in the year that it occurs. Read more about tax considerations.


 
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