TIPS & Inflation-Protected Bond ETFs

Treasury Inflation-Protected Securities — Treasury bonds whose principal balance adjusts with the Consumer Price Index. If CPI rises 3% over a year, a TIPS bond's principal rises 3%; the semi-annual coupon (paid as a fixed % of principal) automatically grows alongside. At maturity, you receive the inflation-adjusted principal.

TIPS outperform nominal Treasuries when actual inflation comes in higher than the market expects. The "breakeven inflation rate" — the difference between nominal Treasury yields and TIPS yields — is the market's inflation forecast. Buying TIPS makes sense if you expect inflation to exceed that breakeven.

The real yield is the inflation-adjusted return TIPS pay above the inflation rate. Real yields are quoted directly on TIPS ETFs. Higher real yields mean better inflation-adjusted returns — they have been near zero or negative for much of the past decade but recovered above 1.5-2% in 2023-2025.