Treasury Inflation-Protected Securities, better known as TIPS, are the government's inflation-linked bonds that anyone can trade. Their principal moves with the consumer price index, so the interest and the final repayment rise when prices do, and their yield is quoted after inflation. That makes TIPS the clearest market measure of two numbers savers care about: the real return the government pays and the inflation rate investors expect. Below are the index ratio math, a worked example with the 5-year TIPS sold in October 2026, how breakeven inflation works, the tax catch and the risks. For the full range of government securities, start at the Treasuries hub.
What are Treasury Inflation-Protected Securities?
TIPS are marketable Treasury securities whose principal is adjusted for changes in the CPI-U, so interest and repayment keep pace with inflation.
Treasury sells TIPS with terms of 5, 10 and 30 years. Each has a fixed coupon rate set at auction, never below 0.125%, and pays interest every six months until maturity. The minimum purchase is $100, in $100 steps, and a noncompetitive bid can be as large as $10 million per auction. Like every Treasury security, TIPS are backed by the full faith and credit of the US government, and they are eligible for the STRIPS program.
Two features set them apart from an ordinary Treasury note:
- The principal changes. It is multiplied by an index ratio based on the CPI-U, the Bureau of Labor Statistics price index for all urban consumers, not seasonally adjusted. It goes up with inflation and down with deflation.
- The yield is real. Treasury's rules define a real yield as the yield on a payment stream in constant dollars, the yield you would earn in the absence of inflation. Inflation is added on top through the principal.
TIPS trade every business day, so their prices move with interest rates. That separates them from Series I savings bonds, the other inflation-linked Treasury product, which cannot be sold to anyone else.
How does the TIPS principal adjust for inflation?
Treasury multiplies the original principal by an index ratio: the reference CPI for that day divided by the reference CPI on the bond's dated date.
Adjusted principal = original principal × (reference CPI on the valuation date ÷ reference CPI on the dated date)
The reference CPI follows rules in Appendix B of 31 CFR Part 356. For the first day of any month it is the CPI-U for the third preceding month, so the reference CPI for December 1 is the September CPI-U. For other days Treasury interpolates in a straight line between the values for the first of that month and the first of the next. The reference CPI and the index ratio are both expressed to five decimals.
The three-month lag exists because BLS publishes each month's CPI in the middle of the following month. In practice a TIPS is always catching up with price changes from about a quarter earlier.
Worked example: The index ratio on the October 2031 TIPS
Treasury auctioned a 5-year TIPS, CUSIP 91282CRR4, on October 22, 2026. It has a 2.25% coupon, a dated date of October 15, 2026, an issue date of October 30, 2026 and a maturity of October 15, 2031.
- Reference CPI for October 1, 2026: the July CPI-U, 333.918. For November 1: the August CPI-U, 334.980
- Reference CPI on the October 15 dated date: 333.918 + (14 ÷ 31) × (334.980 − 333.918) = 334.39761
- Treasury's auction results show an index ratio of 1.00154 on the October 30 issue date, the same formula applied 15 days later
- Reference CPI for December 1, 2026: the September CPI-U, 336.940
- Index ratio on December 1: 336.940 ÷ 334.39761 = 1.00760
- Adjusted principal for $10,000 of par: $10,000 × 1.00760 = $10,076.00
The principal rises 0.76% in the 47 days from the dated date to December 1 because the CPI-U jumped 0.9% from July to September 2026. That is the lag at work: the bond is absorbing price increases that happened before it was sold, and over its life it will miss the last three months of inflation before maturity in the same way.
How are TIPS interest payments calculated?
Each semiannual payment equals the adjusted principal on the payment date times half the fixed coupon rate, so the dollar amount rises with inflation.
Interest payment = adjusted principal × (coupon rate ÷ 2)
At the December 1, 2026 index ratio, $10,000 of the October 2031 TIPS would pay $10,076 × 1.125% = $113.36. The first real payment, on April 15, 2027, will use the index ratio for that date, which depends on CPI-U readings for January and February 2027 that do not exist yet.
Worked example: $10,000 of a 2.25% TIPS over five years with 3% inflation
Assume prices rise exactly 3% a year and coupons are spent, not reinvested.
- Principal at maturity: $10,000 × 1.03⁵ = $11,592.74
- First coupon: about $114.18. Last coupon: about $130.42
- All 10 coupons: about $1,221.37
- Total received: $11,592.74 + $1,221.37 = $12,814.11
- For comparison, a nominal 5-year note at the 4.71% par yield of October 30, 2026 pays $235.50 every six months and $10,000 at maturity, $12,355 in all
At 2% inflation the same TIPS pays about $12,229 in total, less than the nominal note. Where the two cross is the subject of the breakeven section below.
What happens to TIPS when prices fall?
Deflation lowers the adjusted principal and the coupons, but at maturity Treasury pays the larger of the adjusted principal and the original principal.
Run the five-year example with prices falling 1% a year. The adjusted principal shrinks to $9,509.90, yet the maturity payment is $10,000. The coupons have no floor: they slide from about $111.94 to $106.99, for a total of about $1,094, so the holder receives about $11,094 in all.
Two details limit that protection:
- The floor is the original par, not your purchase price. An older TIPS bought in the market with an index ratio well above 1.0 can lose all of its accumulated inflation adjustment before the floor matters. Only a newly issued TIPS starts with a ratio close to 1.0.
- It applies only at maturity. If you sell during a deflationary stretch, you get the market price on the reduced principal.
Falling prices also change the tax picture. A drop in principal produces negative original issue discount that can offset interest income, and Treasury reports negative amounts only to the investor, not to the IRS.
What is the difference between real and nominal yields?
A nominal yield is the return in dollars, while a TIPS real yield is the return above inflation, measured in constant purchasing power.
The two are linked by the Fisher relation: one plus the nominal yield equals one plus the real yield times one plus inflation. The real returns guide applies the same formula to savings accounts and bills.
A TIPS auction sets a real yield, and the coupon is that yield rounded down to the nearest eighth of a point, with a 0.125% minimum. The difference shows up in the price. In the October 22, 2026 auction the high yield was 2.367% and the coupon 2.25%, so the bonds sold below par.
Worked example: What $10,000 of the October 2026 TIPS cost at auction
- Unadjusted price: 99.454587 per $100 of par
- Adjusted price, multiplied by the 1.00154 index ratio: 99.607747
- Principal cost: $10,000 × 0.99607747 = $9,960.77
- Accrued interest from October 15 to October 30, adjusted for inflation: $0.92863 per $1,000, or $9.29
- Total paid on October 30, 2026: $9,970.06
Auction rules also accept negative real-yield bids. When the yield is below the 0.125% minimum coupon, buyers pay more than par and lock in a return below inflation if they hold to maturity.
What is breakeven inflation?
Breakeven inflation is the average inflation rate at which a TIPS and a nominal Treasury of the same maturity would earn the same return.
Breakeven inflation ≈ nominal Treasury yield − TIPS real yield
Worked example: Breakeven rates on October 30, 2026
- 5-year: 4.71% nominal − 2.25% real = 2.46 points
- 10-year: 4.94% − 2.60% = 2.34 points
- 30-year: 5.31% − 3.08% = 2.23 points
- Exact 10-year figure from the Fisher relation: 1.0494 ÷ 1.0260 − 1 = 2.28%
- For context, the CPI-U rose 3.74% in the 12 months to September 2026
The breakeven turns the choice between TIPS and a nominal note into one question: will inflation average more or less than that figure? This table uses the 10-year yields of October 30, 2026, before tax, for a buyer holding to maturity:
| Average inflation over 10 years | Approximate TIPS return in dollars | 10-year note | Higher return |
|---|---|---|---|
| 1.00% | 3.63% | 4.94% | Note |
| 2.28% | 4.94% | 4.94% | Neither |
| 3.74% | 6.44% | 4.94% | TIPS |
| 5.00% | 7.73% | 4.94% | TIPS |
The TIPS column is (1.026 × (1 + inflation)) − 1, a simplification that ignores the timing of coupons. A breakeven is not a pure inflation forecast. Investors accept a lower real yield for inflation insurance, which lifts breakevens, while TIPS trade less actively than ordinary Treasuries, which lowers them.
How do you read today's TIPS yields?
Treasury publishes real yields for 5-, 7-, 10-, 20- and 30-year TIPS every business day, and the tables below set them beside nominal yields.
| Maturity | Yield | A month earlier | A year earlier |
|---|---|---|---|
| 1 month | 4.06% | 4.02% | 4.05% |
| 6 weeks | 4.09% | 4.13% | 4.02% |
| 2 months | 4.16% | 4.16% | 4.04% |
| 3 months | 4.16% | 4.20% | 3.92% |
| 4 months | 4.18% | 4.29% | 3.87% |
| 6 months | 4.25% | 4.33% | 3.79% |
| 1 year | 4.36% | 4.54% | 3.70% |
| 2 years | 4.56% | 4.88% | 3.61% |
| 3 years | 4.65% | 5.00% | 3.61% |
| 5 years | 4.71% | 5.09% | 3.72% |
| 7 years | 4.80% | 5.19% | 3.90% |
| 10 years | 4.94% | 5.29% | 4.11% |
| 20 years | 5.34% | 5.68% | 4.64% |
| 30 years | 5.31% | 5.64% | 4.65% |
| 10-year minus 2-year | +0.38 pts | +0.41 pts | +0.50 pts |
| 10-year minus 3-month | +0.78 pts | +1.09 pts | +0.19 pts |
| Maturity | Real yield (TIPS) | Nominal yield | Implied inflation (nominal minus real) |
|---|---|---|---|
| 5 years | 2.25% | 4.71% | 2.46% |
| 7 years | 2.42% | 4.80% | 2.38% |
| 10 years | 2.60% | 4.94% | 2.34% |
| 20 years | 2.92% | 5.34% | 2.42% |
| 30 years | 3.08% | 5.31% | 2.23% |
Start with the real yields table. The real yield column is what a TIPS of that maturity pays above inflation, the nominal column is the matching ordinary Treasury, and the implied inflation column is the breakeven, nominal minus real. Read the implied inflation figures across maturities: a lower number at 30 years than at 5 years means the market is pricing less inflation for the long run than for the next few years. The par yield table above it shows the whole nominal curve; the yield curve guide explains its shape, and what moves Treasury yields covers the forces behind both curves.
How do you buy TIPS?
You can buy new TIPS at auction through TreasuryDirect or a broker, buy existing TIPS through a broker, or own them through a fund.
Treasury sells new 5-year TIPS in April and October and reopens them in June and December. New 10-year TIPS come in January and July, with reopenings in March, May, September and November. The 30-year TIPS is issued in February and reopened in August.
- TreasuryDirect accepts noncompetitive bids only, so you get the auction's yield. A TIPS bought there must stay for 45 calendar days before it can be moved to a broker and sold.
- A brokerage account can place competitive or noncompetitive bids at auction and buy older TIPS in the secondary market at quoted prices.
- TIPS funds and ETFs hold many issues and never mature, so they offer no par floor and no locked-in real yield.
The guide to buying Treasuries compares these routes, and how Treasury auctions work explains bidding. To size a short-term cash position next to a TIPS holding, the Treasury bill calculator prices a bill at any discount rate.
How are TIPS taxed?
Coupons and each year's inflation increase in principal are both federally taxable in the year they occur, but exempt from state and local income tax.
IRS Publication 550 treats any increase in the inflation-adjusted principal as original issue discount, reported on Form 1099-OID, so you owe tax on it every year even though the cash arrives only at maturity. Investors call this phantom income.
Worked example: Phantom income on $10,000 of TIPS
Take a year in which the CPI-U rises 3.74%, as it did in the 12 months to September 2026, on a 2.25% TIPS.
- Inflation added to principal: $10,000 × 3.74% = $374, taxable now, paid at maturity
- Coupons received in cash: 2.25% of an average principal of about $10,187, or about $229
- Federally taxable income: about $603
- Federal tax at a 24% rate: about $145, roughly 63% of the cash the bond paid
The higher inflation runs, the larger the gap between taxable income and cash received. Holding TIPS in an IRA or 401(k) avoids the yearly bill, which is why many investors keep them there; the guide to Treasuries in an IRA covers the trade-offs, and the T-bill tax guide explains the state exemption. Tax rules change, so check your own situation with a tax professional.
What are the risks of TIPS?
TIPS remove inflation risk only for investors who hold to maturity; before then, real-yield changes, the CPI lag and taxes can all cut returns.
- Real-yield risk. Prices fall when real yields rise. For a TIPS priced at par, a one-point rise cuts the price by about 4.6% on a 5-year issue, 8.3% on a 10-year and 17% on a 30-year. The bond price guide explains the math, and the guide to selling Treasuries before maturity covers the process.
- Low inflation. If inflation averages less than the breakeven, an ordinary Treasury of the same maturity would have paid more.
- A limited deflation floor. It protects only the original par, only at maturity.
- Index mismatch. The CPI-U is an average basket. A household whose rent, insurance or medical costs rise faster than the index is only partly protected.
- Phantom income. In a taxable account, tax on inflation adjustments is due years before the cash arrives.
- Thinner trading. The TIPS market is smaller than the market for nominal Treasuries, so selling before maturity can mean a wider gap between bid and ask prices.
The government's backing makes default unlikely, but it does not remove these market risks. The guide to whether Treasuries are risk-free and the overview of types of investment risk put them in context. Figures on this page are worked examples, not forecasts.