Fixed Income Markets, US Treasury TIPS & Inflation-Linked Bonds
TIPS Index Ratio, Deflation Par Floor & Coupon Formula
Calculate US Treasury Inflation-Protected Securities (TIPS) CPI Index Ratio, Maturity Deflation-Floored Principal ($), Semiannual Inflation-Indexed Coupon ($), and Exact Fisher Breakeven Inflation Rate.
Distinguish TIPS maturity par-floor protection from unfloored semiannual coupons!
Under US Treasury 31 CFR §356 rules for Treasury Inflation-Protected Securities (TIPS), original par principal ($1,000) scales daily by the Reference CPI-U Index Ratio = CPI_ref / CPI_base (rounded to 5 decimal places)! A critical asymmetry trips up fixed-income learners: at MATURITY redemption, the Treasury enforces a 100%-of-Par Deflation Floor so Maturity_Redemption_Principal = Par * MAX(1, CPI_ref / CPI_base)—you never receive less than $1,000 at maturity! Ongoing semiannual coupon payments, however, apply half the fixed Real Coupon Rate to unfloored Inflation_Principal = Par * (CPI_ref / CPI_base), so sustained deflation shrinks interim coupons below face coupon while maturity principal stays floored at $1,000!
Verify on a 10-Year US TIPS Note—Original_Par = $1,000.00 (B2), Issue_Base_CPI = 250.00 (B3), Settlement_Ref_CPI = 310.00 (B4 -> TIPS Index Ratio = 310 / 250 = 1.24000 in E2 & Maturity Protected Principal = $1,240.00 in E3), Fixed_Real_Coupon = 0.02 (2.00% annual = 1.00% semiannual, B5 -> Semiannual Indexed Coupon = 1,240 * 0.01 = $12.40 in E4), and Matched_Nominal_Treasury_Yield = 0.044 (4.40%, B6): Exact Fisher Breakeven Inflation is (1.044 / 1.020) - 1 = 0.0235 (2.35% in E5, vs 2.40% simple spread)!
| US TIPS Metric ($1,000 Par, CPI 250 -> 310, 2.0% Real Coupon, 4.4% Nominal Tsy) | Formula | Verified Output |
|---|---|---|
| Reference CPI Index Ratio | ROUND(CPI_ref / CPI_base, 5) | 1.24000 (0.90000 @ CPI=225) |
| Maturity Protected Principal ($) | Par * MAX(1, Index_Ratio) | $1,240.00 ($1,000.00 Floor @ 225) |
| Semiannual Indexed Coupon ($) | (Par * Index_Ratio) * (Real_Coupon / 2) | $12.40 ($9.00 Unfloored @ 225) |
| Exact Fisher Breakeven Inflation | ((1 + Nominal_Yield) / (1 + Real_Yield)) - 1 | 0.0235 (2.35% Compounded) |
TIPS Maturity Protected Principal & Semiannual Coupon Formula
Validate Par > 0, CPI_base > 0, CPI_ref > 0, Real_Coupon >= 0, and Nominal_Yield > -0.50!
=LET(pr_0, B2, cp_0, B3, cp_t, B4, rl_c, B5, nm_y, B6, IF(OR(pr_0 <= 0, cp_0 <= 0, cp_t <= 0, rl_c < 0, nm_y <= -0.5), "Invalid TIPS Bond Input", LET(ix_r, ROUND(cp_t / cp_0, 5), ROUND(pr_0 * MAX(1, ix_r), 2))))-10% Deflation Asymmetry Check (Set Reference CPI = 225.00)
Drop Settlement_Ref_CPI B4 from 310.00 down to 225.00 (-10% cumulative deflation -> Index Ratio E2 = 0.90): Maturity Principal E3 holds firm at $1,000.00 via MAX(1, 0.90), while Semiannual Coupon E4 scales down proportionally to $9.00!
=IF(ISTEXT(E3), E3, ROUND((B2 * ROUND(B4 / B3, 5)) * (B5 / 2), 2))Try the example
Use the original values or change them to test your understanding.