Treasury Inflation-Protected Securities

TIPS are US Treasuries whose principal adjusts with CPI — a real-rate instrument, not a magic inflation hedge for every horizon.

Definition

Principal accretes with CPI-U; coupons are a real rate on the accreted principal. At maturity you get the greater of accreted or original par (deflation floor on principal). Breakevens are nominal yield minus TIPS real yield.

Why it matters

Real yields are the discount rate for duration assets. TIPS are how you trade them without a swap.

Case

2021–22: breakevens rose and then real yields rose more. TIPS lost money in nominal terms even as inflation printed hot — duration dominated carry.

How to read it

Horizon vs index lag (3 months), tax on accretion, and whether you wanted inflation beta or real-rate duration. They are not the same.

Memory

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Define Treasury Inflation-Protected Securities in plain language. Then say why it matters and give one short case. If evidence is thin, say what is missing — do not invent a trading playbook.

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