MooreBonds
Thinks s/he gets paid by the post
As other posters have pointed out in the past, it may seem like it's just the gov't way of screwing you....but imagine the scenario where the government paid out the inflation increase each year instead of just adding it to the principal and giving it to you at the end of the term.
Now imagine what happens when deflation [-]happened for a short period of time[/-] happens.
Does the gov't run after all of the holders of the billions in bonds and ask them to cut checks to the gov't? Does the gov't deduct it from an interest payment? If an interest payment, how do they pro-rate it over the course of the year? It's much cleaner (and of course, carries the nice side benefit of an 'interest free loan') to just tack the inflation changes onto the bond and pay out at maturity.
You can also get into the semantics of what a TIP really is - it's a debt instrument that seeks to give you a constant yield based on an initial principal amount. If they pay out the inflation increases each year, then the constant yield will always be based on the original principal, and you'll actually be getting screwed over time, because your real interest payments will be decreasing, rather than holding constant, as well as having to find a place to invest the principal adjustment payments.
