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This Day In Market History: US Treasury Introduces TIPS

Wayne Duggan

Each day, Benzinga takes a look back at a notable market-related moment that happened on this date.

What Happened?

On this day 21 years ago, the U.S. Treasury introduced the first Treasury Inflation-Protected Securities (TIPS).

Where Was The Market?

The S&P 500 was trading at 772.50 and the Dow Jones Industrial Average was at 6740.74.

What Else Was Going On In The World?

In 1997, Apple Inc. (NASDAQ: AAPL) co-founder Steve Jobs returned to the company, and the Mars Pathfinder successfully landed on the surface of Mars. A pound of hamburger meat cost $1.38.

Bond Investors Get Inflation Hedge

After years of having to battle inflation when buying Treasury bonds, investors got their first crack at TIPS investing in 1997. While the coupon rates of TIPS are constant, the principals are adjusted based on the Consumer Price Index, a commonly used metric for measuring inflation.

Treasury bonds are considered some of the lowest-risk investments out there due to their backing by the U.S. government. TIPS eliminate even more of the risk involved in Treasury bond investing. This lower risk comes at a price, however, as TIPS typically carry interest rates that are lower than other government or corporate bonds.

Investors can buy TIPS for as little as $100 using the TreasuryDirect system. TIPS pay interest semiannually and are currently offered with maturities of five years, 10 years and 30 years.

For investors who would prefer to buy TIPS ETFs, popular choices include the iShares Barclays TIPS Bond Fund (ETF) (NYSE: TIP), the Vanguard Asset Allocation Fund (NASDAQ: VTIP) and the Schwab Strategic Trust (NYSE: SCHP).

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