Vanguard to Unveil New TIPS ETF on Tuesday


Vanguard, the third-largest U.S. ETF issuer, will introduce the Vanguard Short-Term Inflation-Protected Securities Index on Tuesday October 16. The new ETF will trade on the Nasdaq under the ticker "VTIP."

VTIP will track the Barclays U.S. Treasury Inflation-Protected Securities (TIPS) 0-5 Year Index, which includes TIPS issued by the U.S. Treasury with maturities of less than five years.

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"Unlike a conventional bond, whose issuer makes regular fixed interest payments and repays the face value of the bond at maturity, an inflation-indexed security (IIS) provides principal and interest payments that are adjusted over time to reflect a rise (inflation) or a drop (deflation) in the general price level for goods and services," Vanguard said in VTIP's prospectus.

"Interest rates on an ISS are adjusted for inflation and, therefore, aren't affected meaningfully by inflation expectations. This leaves only real rates to influence the price of an IIS. A rise in real rates will cause the price of an IIS to fall, while a decline in real rates will boost the price of an IIS," according to the prospectus.

VTIP will have an expense ratio of 0.1 percent per year.

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