TIPS: Inflation-Adjusted Principal and the Meaning of a Negative Yield
Treasury Inflation-Protected Securities adjust principal with inflation, which also affects the dollar amount of interest paid on that principal. This structure can make an auction result or account balance look unfamiliar, particularly when real yields are negative. This guide explains how TIPS differ from a conventional Treasury bond and why an inflation adjustment does not mean every purchase price is protected. It focuses on the relationship between the original principal, adjusted principal, interest payments, and maturity payment.
Adapted from public-domain educational material published by U.S. Treasury. Fynoptic has organized and edited the material and added introductory and practical guidance. Sources were reviewed on October 28, 2026; original publication dates, where available, are listed below.
A simple payment example
Consider a hypothetical TIPS with $1,000 of original principal and a fixed annual coupon rate of 1%. If its inflation-adjusted principal at an interest-payment date is $1,020, the semiannual payment is $5.10: half of 1% multiplied by $1,020. The coupon percentage has not changed; the dollar base used to calculate it has changed. If adjusted principal later falls, the next payment can fall as well. This example illustrates the payment mechanism, not an available market rate or a forecast of inflation.
Now keep a second number in view: what the investor paid to acquire the security. A purchase at a premium costs more than the original principal. Treasury’s maturity floor is expressed in terms of original principal, so it should not be read as a promise to repay every investor’s purchase price. A sale before maturity is another separate transaction, with a market price at the time of sale.
These distinctions explain why a positive coupon can coexist with a negative real yield. Coupon payments describe one part of the cash flow; yield also reflects the price paid. When reviewing a confirmation, label the original face amount, adjusted principal, purchase price, coupon, and maturity date separately. Doing so prevents several different numbers from being treated as the same guarantee.
TIPS
We sell TIPS for a term of 5, 10, or 30 years.
As the name implies, TIPS are set up to protect you against inflation.
Unlike other Treasury securities, where the principal is fixed, the principal of a TIPS can go up or down over its term.
When the TIPS matures, if the principal is higher than the original amount, you get the increased amount. If the principal is equal to or lower than the original amount, you get the original amount.
TIPS pay a fixed rate of interest every six months until they mature. Because we pay interest on the adjusted principal, the amount of interest payment also varies.
You can hold a TIPS until it matures or sell it before it matures.
TIPS at a Glance
| Now issued in | Electronic form only |
|---|---|
| Matures in | 5, 10, or 30 years |
| Interest rate | The rate is fixed at auction and is never less than 0.125%. Treasury TIPS auction rules allow for negative real yield bids. See "Information on Negative Rates and TIPS" The amount you get is based on the principal at the time of each interest payment and the principal can go up or down. See Results of recent TIPS auctions. For more information, also see our page on the daily index ratio for TIPS. |
| Interest paid | Every six months until maturity |
| Minimum purchase | $100 |
| In increments of | $100 |
| Maximum purchase | $10 million (non-competitive bid) 35% of offering amount (competitive bid) (See Buying a Treasury marketable security for information on types of bids.) |
| Auction frequency | 5-year TIPS
|
| Taxes | Federal tax due each year on interest earned. Any increase or decrease in the principal during the year may affect your federal taxes. No state or local taxes |
| Eligible for STRIPS? | Yes |
How TIPS protects you against inflation
The principal (called par value or face value) of a TIPS goes up with inflation and down with deflation.
When a TIPS matures, you get either the increased (inflation-adjusted) price or the original principal, whichever is greater. You never get less than the original principal.
Also, see our page on "Comparing TIPS and Series I Savings Bonds".
How and when we adjust TIPS for inflation
We adjust the principal of your TIPS using this version of the Consumer Price Index from the Bureau of Labor Statistics.
You can use our page on the daily index ratios to see how your TIPS principal is changing.
Information on Negative Rates and TIPS
Treasury TIPS auction rules allow for negative real yield bids and describe how the interest (coupon) rate on the original issue would be set if the auction stops at a negative real yield. The Debt Financing System (DFS) handles negative-yield bids for all TIPS auctions, both for original auctions and reopening auctions.
In April 2011, Treasury amended paragraph (b) of 31 CFR 356.20 to state that if a Treasury note or bond auction results in a yield lower than 0.125 percent, the interest rate will be set at 1/8 of one percent with the price adjusted accordingly (i.e., at a premium). This change applies to all subsequent marketable Treasury note and bond issues: Treasury fixed-principal (also referred to as nominal) notes and bonds as well as Treasury inflation-protected notes and bonds.
Putting this into practice
Keep the purchase price separate from the original face amount and the inflation-adjusted principal. Check when interest is paid and how tax reporting treats adjustments. An inflation-linked payment formula should be understood on its own terms before comparing it with a fixed-rate security.
Sources and further reading
- TIPS — U.S. Treasury
- Information on Negative Rates and TIPS — U.S. Treasury