- TIPS are U.S. Treasury marketable securities whose principal adjusts with a specified Consumer Price Index measure.
- The coupon rate is fixed, but semiannual interest payments vary because the coupon is applied to the inflation-adjusted principal.
- At maturity, Treasury pays the inflation-adjusted principal or the original principal, whichever is greater; market value before maturity can still rise or fall.
- TIPS address inflation risk differently from nominal Treasuries, but they still have interest-rate, real-yield, price, tax, and reinvestment considerations.
Treasury auction schedules, yields, tax rules, and issue terms can change. Verify current TreasuryDirect information, auction announcements, tax guidance, and the specific security before acting.
Follow the principal adjustment first
Treasury adjusts TIPS principal using a specified Consumer Price Index measure. Inflation can increase the adjusted principal and deflation can reduce it during the life of the security, so the value used to calculate coupon payments is not fixed.
Separate the coupon rate from the cash payment
A TIPS coupon rate is fixed at issuance, but the dollar interest payment can change because the rate is applied to the adjusted principal. That is different from a nominal Treasury whose principal remains fixed.
Understand the maturity floor and market-price risk
Treasury states that at maturity the investor receives the inflation-adjusted principal or the original principal, whichever is greater. That maturity treatment does not prevent the market price from moving before maturity when real yields, liquidity, or expectations change.
Compare real yield with nominal yield and inflation expectations
A TIPS yield is commonly discussed as a real yield. Comparing a TIPS yield with a nominal Treasury yield can help frame the inflation compensation embedded in market pricing, but the comparison is not a forecast guarantee and should account for maturity and security differences.
Keep taxes and holding location in the comparison
TreasuryDirect notes that federal tax can be due on interest and changes in principal during the year, while Treasury marketable securities are exempt from state and local taxes. Tax treatment can affect the practical experience of holding TIPS, so current tax guidance matters.