Which of the following statements about TIPS is true?

The statement that TIPS protect against inflation is accurate. Treasury Inflation-Protected Securities, or TIPS, are designed specifically to safeguard investors from inflation. Unlike other types of Treasury securities, TIPS have a unique structure where both the principal and interest payments are adjusted based on changes in the Consumer Price Index (CPI). As inflation rises, both the principal amount and the interest payments increase, which means that the purchasing power of the investment is maintained. This feature makes TIPS particularly appealing during periods of rising inflation, as they offer a reliable way to preserve the value of investments in real terms.

Other options present characteristics that do not accurately describe TIPS. For instance, TIPS are not treasury bills, which are short-term debt instruments without inflation protection. Additionally, TIPS do not provide a fixed interest rate; instead, the interest payments fluctuate based on the adjusted principal. Lastly, every type of TIPS is indeed backed by the full faith and credit of the U.S. government, solidifying their status as a secure investment.