Just that much gives you a clue how quickly the world of TIPS turns arcane. That's too bad, because the essence of these things is not that hard to grasp. In any case, I promise you'll be hearing more about TIPS soon. A bigger reason is that inflation seems to be picking up. First, in exchange for borrowing your money, the Treasury gives you a TIPS and vows to make up any purchasing power it loses to inflation.
Ordinary bonds pay back only the face amount.
That sets a floor, guaranteeing that the bond's value will not fall below its face value if consumer prices drop. Yet these bonds are hardly a hot investment. One drawback is they come in just seven maturities, ranging from 2 to 29 years. Buy a TIPS, and you'll have to pay income tax each year on the inflation adjustments, even though you won't get the actual cash until the bond matures. That makes TIPS most useful in tax-deferred accounts.