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How do Treasury Inflation-Protected Securities (TIPS) work?

April 26, 2017ABCs bonds index inflation inflation protection inflation-protected securities tips Treasury

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How do Treasury Inflation-Protected Securities (TIPS) work?

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Regular bonds pay interest on the principal amount of the bond which provides income for the bond owner. TIPS are different in two ways: • The principal amount of the bond is changed according to the Consumer Price Index (CPI). It can go up or down. • The interest payment is based on the current principal amount of the bond which can be different than the original principal amount.