Friday, October 23, 2009

5 Year Tips Auction – My Ladder

If you are interested in purchasing 5 year TIPS, they are going to be auctioned off next week. Many brokerages will allow you to purchase them at the non-competitive price without paying any commission.

I am gradually replacing some of my bond fund holdings with 5 year TIPS. With next week's purchase, I will have TIPS maturing in 5,4, and 3 years. Every year, I will do the same thing until I have a completed 5 year ladder.


Treasury Inflation-Protected Securities (TIPS)

Treasury Inflation-Protected Securities, or TIPS, provide protection against inflation. The principal of a TIPS increases with inflation and decreases with deflation, as measured by the Consumer Price Index. When a TIPS matures, you are paid the adjusted principal or original principal, whichever is greater.

TIPS pay interest twice a year, at a fixed rate. The rate is applied to the adjusted principal; so, like the principal, interest payments rise with inflation and fall with deflation.

You can buy TIPS from us in TreasuryDirect and Legacy Treasury Direct through non-competitive bidding. Starting in January 2007, the 20-year TIPS is no longer sold in Legacy Treasury Direct, but it continues to be available in TreasuryDirect.

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