Inflation Adjusted Treasury Bonds

By: EconomyWatch   Date: 14 October 2010

About The Author

EconomyWatch

The core Content Team our economy, industry, investing and personal finance reference articles.

EconomyWatch, Content Team

 

  • Dot Div
  •      


Majority of the people invest in Treasury bonds to protect their investments. They do so to protect their money. However, one drawback of the treasury bond is that it loses purchasing power when inflation takes its toll. To protect the bonds from inflation, the United States Treasury designed securities, which adjust with inflation and are therefore referred to as inflation adjusted treasury bonds. The inflation adjusted treasury bonds are provided by the United States government. They are also known as government bonds.

Inflation adjusted treasury bonds, adjust themselves as per the CPI-U or the Consumer Price Index (urban consumers). The CPI-U is one of the measuring tools of inflation. The CPI-U is published , for the knowledge of the public every month, by the Bureau Of Labor Statistics.(United States Department Of Labor).

Inflation adjusted treasury securities are mainly of four types. All these securities enjoy the benefit of inflation adjustment.They are:
  • Treasury bonds
  • Treasury bills
  • TIPS or treasury inflation protection securities
  • Treasury notes



I) Inflation adjusted treasury bonds:

These types of bonds are characterized by having maturity periods, which are the longest. The maturity period of inflation adjusted treasury bonds range between 10 years and 30 years. One can avail of coupon payment at intervals of six months.

II) Treasury Bills or T bills:

The maturity time of treasury bills is one year or less than a year. In case of treasury bills, the interest is not paid before the bill matures. Treasury bills are considered to be very safe and do not involve much risk.

III) Treasury notes:

Treasury notes are also known as T notes. The maturity time ranges between 2 years to 10 years. Maturity time of 2 years, 5 years, 10 years, have denominations ranging from USD$1,000- USD$1,000,000. Coupon payment at intervals of 6 months is available.

IV) TIPS or Treasury inflation protected securities:

TIPS are inflation-indexed bonds. These bonds are issued by the United States treasury. In these types of bonds, adjustment of the principal amount is made according to the CPI or consumer price index. TIPS, usually gives a different interest amount, when it is multiplied by the principal, which is inflation adjusted. However, there is constancy in the coupon rate. Term of the bond ranges between 5years to 20 years.


  • Dot Div
  •      

Most Popular in Inflation

Related Links
blog comments powered by Disqus