Treasury Inflation Protected Securities, or TIPS, are government securities designed by the U.S. Treasury to help protect investors from inflation.
TIPS pay interest twice a year, at a fixed rate (not a fixed amount). The fixed rate is applied to the inflation/deflation adjusted principal. Therefore, the interest payments rise with inflation and fall with deflation. Both the interest and the principal payments are indexed against the Consumer Price Index. So the yield quoted on a TIPS is a "real" return -- that is, an incremental return that is added to the rate of inflation.
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