ALEXANDRIA, Va. – The NCUA Board this morning added Treasury Inflation Protected Securities, Treasury securities indexed to the rate of inflation that are known as TIPS, as permissible investments for federally chartered credit unions.

NCUA said TIPS will provide credit unions with an additional risk management tool that can be useful in an inflationary economic environment.

The principal amount of TIPS increases with inflation and decreases with deflation, as measured by the Bureau of Labor Statistics’ Consumer Price Index.  When TIPS mature, holders are paid the adjusted principal or original principal, whichever is greater. 

TIPS pay interest twice a year at a fixed rate.  The rate is applied to the adjusted principal, so, like the principal, interest payments rise with inflation and fall with deflation.  In a deflationary period, it is possible to experience a contractual decline in the principal balance, which is not an event of default.

The final rule will be effective 30 days after it is published in the Federal Register.

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