From the course: Applied Fixed Income

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Mechanics of TIPS

Mechanics of TIPS

From the course: Applied Fixed Income

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Mechanics of TIPS

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- [Andrew] In this next section I want to go into more detail about the mechanics of inflation-linked securities. And in order to do so let's take a look at the US TIPS. It's the most common linker, and it also gives us a very clear picture on how to calculate inflation-adjusted coupon and inflation-adjusted principal. So, if you'll remember back to my description of inflation-linked securities, these notes have principal and interest that change based on the underlying inflation benchmark, in this case the CPI Index. The CPI Index for those who are unfamiliar is the non-seasonally-adjusted all urban Consumer Price Index version. And you can find that on Bloomberg using the ticker CPURNSA. Now, as it's not seasonally adjusted there are no revisions to deal with. But the problem with that is it includes predictable seasonal fluctuations in inflation, such as in the month of December where Boxing Day and year-end sales slow down inflation below its trend growth. But having said that…

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