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What are TIPS rates pegged to?
Old 03-10-2007, 08:04 AM   #1
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What are TIPS rates pegged to?

Question on TIPS. What is the real rate of return pegged to? Is it some ratio of the coresponding treasury?

One reason I'm asking is considering if to buy some TIPS now or wait a bit for a better real return rate.

Also, didn't we have a thread that got to the issues of TIPS bonds vs. Funds? I did a search a found one with that topic but I think there was a more in depth one. Anybody remember and can reference? Thanks.

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Re: What are TIPS rates pegged to?
Old 03-10-2007, 10:08 AM   #2
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Re: What are TIPS rates pegged to?

The real rate isn't pegged to anything. It is determined at auction.

Where real rates will go from here? Your guess is as good as mine.

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Re: What are TIPS rates pegged to?
Old 03-10-2007, 10:17 AM   #3
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Re: What are TIPS rates pegged to?

From treasurydirect:

The U.S. Treasury has been issuing Treasury Inflation-Protected Securities (TIPS) since 1997. TIPS provide investors with protection against inflation. The principal of a TIPS increases with inflation and decreases with deflation, as measured by the Consumer Price Index. (CPI-Urban, Non-Seasonally-Adjusted with a 3-month lag)

When a TIPS matures, the investor is paid the inflation-adjusted principal or original principal, whichever is greater. Since a TIPS investor won't receive less than the original principal, the investor's original principal amount is protected against deflation as well.

TIPS pay interest semiannually at a fixed rate. The rate is applied to the adjusted principal; so, like the principal, interest payments rise with inflation and fall with deflation.
They are bought and sold at auction, like citril said.
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