Question

1. How does a TIPS bond differ from the typical U.S. Treasury security?

Answer 1

Treasury Inflation-Protected Securities:

TIPS referes to Treasury Inflation-Protected Securities, these securities provide hedging againg the inflation in the economy. In general the interest and principal increase with the rise in the inflation simply to say they protect the investors from inflation but the important thing to note is that these interest and principal also reduce i.e deflate with the fall in the inflation.

US treasury Security :

Us treasury securities are nothing but the debt raised by the government since it is government backed security it is of very low risk. The Government of United States uses this security inorder to raise money for government funding. Generally this is done when is a cash crunch and deficit budget with the government. However the interest rates are fixed for various periods during the time of issue itself. Simply to say this is nothing but DEBT to the government

Hence we can conclude that both these are very different types of securities.