Treasury Inflation Protected Securities (TIPS)

August 2023

In this paper, we provide an overview of Treasury Inflation Protected Securities (TIPS).

TIPS may provide reliable income while also offering a long-term inflation hedge to investors for whom inflation is a substantial risk (e.g., pensions for which benefits are indexed to inflation, as well as endowments and foundations). That said, a market-duration TIPS portfolio will be at least as sensitive to changes in interest rates as it is to changes in inflation expectations. Being issued by the US Treasury, TIPS can also play the role of high-quality bonds, serving as a unique kind of ballast. As with other Treasury bonds, TIPS’ modest level of returns means that substituting them for other, riskier investments in a portfolio comes with a potential opportunity cost.