Understanding Inflation-Protected Bonds: A Guide to TIPS
Introduction
Inflation is a key driver of economic stability and growth. When consumer prices rise, it erodes the purchasing power of individuals and businesses. This is why investors are constantly seeking ways to protect their investments from the harmful effects of inflation. One such investment option is inflation-protected bonds.
What are Inflation-Protected Bonds?
Inflation-protected bonds, also known as Treasury Inflation-Protected Securities (TIPS), are government-issued bonds that provide protection against inflation. These bonds are specifically designed to help investors maintain their purchasing power by adjusting the bond’s principal value with changes in inflation. This means that the interest and principal payments on these bonds are adjusted to keep pace with inflation.