What it is
TIPS are a type of U.S. Treasury security designed to protect investors from inflation. Unlike traditional bonds, the principal value of a TIPS bond increases with inflation and decreases with deflation, as measured by the Consumer Price Index (CPI). The interest payment, paid semi-annually, is then calculated based on this adjusted principal. At maturity, investors receive either the adjusted principal or the original principal, whichever is greater, ensuring their initial investment is protected against deflation.
TIPS are closely watched in financial markets as their yields, when compared to nominal Treasury yields, reveal market expectations for future inflation. The difference between the yield of a nominal Treasury bond and a TIPS bond of the same maturity is known as the breakeven inflation rate. Investors buy TIPS when they anticipate rising inflation, seeking to preserve the real value of their investment. Their demand and pricing provide insights into inflation expectations and real interest rates.
Why it matters
TIPS help protect your investment's purchasing power against inflation, making them a key tool for diversification and understanding market inflation expectations.
Reviewed under editorial standardsUpdated September 26, 2026Not investment advice