a practical guide to investing in bonds, bond funds, and other fixed income securities
TIPS are Treasury Inflation Protected Securities. They are a special kind of bond issued by the United States Treasury. They are special because their principal and interest are indexed to the Consumer Price Index, which is a measure of inflation.
Why buy TIPS? To make money, of course.
Do nominal bonds also protect you from inflation? Yes and no. Nominal bonds offer protection for expected inflation, while TIPS offer protection for unexpected inflation.
Both TIPS and I Bonds offer inflation protection. How are they different? In a nutshell, TIPS work like a bond, while I Bonds work like a CD.
What happens to TIPS when interest rates change? It depends on what's driving the interest rate changes.
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