IMPORTANT TERMS

Before you can understand the unique nature of Treasury inflation-adjusted bonds, you will need to understand a few terms common to all types of bonds.

The face amount of a bond is called its principal or par value. The principal is the amount you originally invest in the bond, which represents a loan made to the organization issuing the bond. The face amount of a bond is due to be repaid when it matures. If you hold your bond until it matures, you get back your entire principal unless the bond defaults.

Treasury inflation-adjusted bonds are adjusted based on the Consumer Price Index (CPI-U). The CPI-U measures the average change over time in the prices urban consumers pay for a given "basket" of goods and services. As prices continuously increase over time, the purchasing power of the consumer's dollar declines. This is called inflation. The CPI-U is the most widely used measure of inflation. The Bureau of Labor Statistics of the U. S. Department of Labor publishes the CPI-U monthly.
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