Investing in Treasury Inflation Protected Securities

Inflation-protected securities are bonds with unique investment characteristics. These securities represent a relatively new type of financial asset in the United States, where the government first issued Treasury Inflation-Indexed Securities (also called Treasury inflation-protected securities, or TIPS) in January 1997. The TIPS market has experienced rapid growth: Its total value had climbed from $31.06 billion, or 1.45% of the conventional U.S. Treasury market, at the end of 1997 to $305 billion, or 13.5% of that market, by the end of 2005. In countries with a longer issuance history, such as the United Kingdom, inflation-indexed bonds currently account for approximately 40% of outstanding government debt. The Treasury Department reaffirmed its commitment to TIPS and announced that it planned to add additional maturities to TIPS’ issuance cycle. Vanguard expects the TIPS market to continue to grow in importance.