Treasury Inflation-Indexed Securities Provide Protection Against Inflation PDF Download

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Treasury Inflation-Indexed Securities Provide Protection Against Inflation

Treasury Inflation-Indexed Securities Provide Protection Against Inflation PDF Author: Walter J. Reinhart
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Languages : en
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Book Description
A challenge faced by investors as interest rates eventually rise in response to inflationary pressure is how they maintain value and purchasing power. Treasury Inflation Protected Securities (TIPS) are a debt instrument offered to protect against inflation. This article describes TIPS, reviews their risk return profile, explains tax considerations, provides several numerical examples, and briefly discusses investment/portfolio factors. The tax treatment of TIPS consists of two components: (1) the taxation of semiannual interest payments, and (2) the taxation of inflation/deflation adjustments to principal. Because TIPS are issued at par and interest is unconditionally payable in cash at least annually at a single fixed rate (called qualified stated interest), they meet the criteria for the more simplified coupon bond method specified by the Treasury regulations. The tax implications negate some of the certainty of inflation protection if they are held in taxable accounts.
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