Inflation-Indexed Bond

Commonly referred to as TIPS, or treasury inflation-protected securities. Introduced in 1997, TIPS are immune to the risk of inflation if held to maturity. The face value, or principal amount of TIPS rises over the life of the bond as inflation, as measured by the Consumer Price Index (CPI), increases, and vice versa. The investor is compensated for inflation movements in two ways: higher coupon payments based on a face value amount that is adjusted every six months and a higher principal payment at maturity based on the adjusted face value.