TIPS

As of June 2014, the TIPS marketplace was valued at just under $1 trillion, representing ~ 8% of the Treasury debt market. TIPS represent the only marketable U.S. debt instrument with an inflation hedge—prices are adjusted twice a year to account for CPI increases.

 

The difference between the 10-year Treasury and a 10-year TIP may be a strong indication as to the market’s 10-year projection for inflation. For example, if a 10-year Treasury is yielding 2.5% and a 10-year TIP’s yield was 0.3%, the bond market believes, at that moment, inflation will average 2.3% a year over the next 10 years.