Inflation has been low recently and medium-term expectations from central banks have been mixed. Nonetheless, hedging against the risk of inflation is important in portfolio construction, and treasury inflation-protected securities (TIPS) can offer a counterbalance to traditional fixed income securities. We present information on TIPS, as well as potential opportunities for the current environment.
Treasury inflation-protected securities (TIPS) are fixed coupon bonds issued and backed by the full faith and credit of the US government. Like most treasuries, they pay interest payments semi-annually. Where they differ from traditional treasuries is in their face values, which move with inflation over the life of the bond.