Treasury Inflation-Protected Securities (TIPS) are US Treasury securities that are structured to protect investors from inflation. The Treasury has auctioned 5-, 10- and 20-year TIPS, but issues may be suspended for a period. TIPS pay semiannual coupons. Their principal is indexed to inflation, and this is how TIPS differ from Treasury notes and Treasury bonds. A TIPS' coupon yield is fixed at the time of issuance, but it is applied to the inflation-adjusted principal, so coupons fluctuate with inflation. At maturity, investors receive the final coupon and the greater of the inflation-adjusted principal or the original principal. Inflation adjustments are calculated based on non-seasonally adjusted US City Average All Items Consumer Price Index for All Urban Consumers (CPI-U), published monthly by the Bureau of Labor Statistics (BLS). Inflation-adjusted bonds are issued by other governments, including the Australian, British, Canadian and French governments. Although it is not a standardized practice, the acronym TIPS is occasionally used to refer to any inflation-adjusted bond.
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