Treasury inflation-protected securities (TIPS)

Securities issued by the U.S Treasury that have a return linked to inflation. The coupon rate on TIPS is fixed, but the principal amount (par value, or the face value of the bond) is adjusted semiannually based on an inflation index, the non-seasonally adjusted consumer price index for all urban consumers (CPI-U). Inflation, as reflected by an increase in the index, results in a corresponding increase in the bond's principal. Since interest is paid on the outstanding principal, inflation will also lead to an increase in the dollar coupon received by investors.