The establishmentarians -- such as our Noble and Wise President -- want to "index" social security (OASI) benefits to the "chained" CPI, which implies a lower inflation rate than the standard CPI-U and thus reduces benefit pay-outs. If this is instituted, would it also apply to TIPS (Treasury Inflation-Protected Securities)?
-- from http://wiki.fool.com/TIPS : >> TIPS are auctioned with 5, 10 and 20 year maturities. Secondary market TIPS >> can provide a selection of maturity dates.... Like all Treasury bonds, TIPS are backed by the full faith and credit of the U.S. government. TIPS interest is subject to federal income tax, but is state and local tax exempt. TIPS can be bought on the auction date either from Treasury Direct or from a brokerage. TIPS can also be bought on the secondary bond market any time. The coupon yield of the TIPS is set on the auction date. Interest payments are calculated by applying the coupon rate to the principal. This is what makes TIPS different from most other bonds: TIPS principal isn't fixed. The principal of the TIPS is adjusted by changes in the Consumer Price Index for Urban Consumers (CPI-U). The coupon yield is applied to the inflation-adjusted principal for the interest, which is paid every 6 months. Because TIPS are inflation adjusted, their price is more stable than ordinary Treasury bonds, whose value drops if inflation rises above the predicted inflation rate. TIPS price movements are based solely on interest rate movements, since they are adjusted for inflation. The difference between the yield of a Treasury and a TIPS of the same maturity indicates the market's prediction of inflation over that duration, because Treasuries and TIPS are equally safe. If you believe that inflation will be higher than the predicted inflation rate over the duration of the bond, you should buy TIPS instead of Treasuries. << -- Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own way and let people talk.) -- Karl, paraphrasing Dante. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
