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TREASURY NEWS
The Treasury Department announced that beginning June 2, 2008 auctions of a one-year Treasury bill will begin again to meet the government's financing needs. Another alternative that the Treasury Department may initiate is to return the auctions of the 3-year Treasury bills as well.
The 10-year Treasury note reached its highest yield in five years when the yield topped 5.33% in June, but has now fallen all the way back to as low as 3.66% as government bonds have rallied. Short-term T-Bills have not witnessed such a large rally since 1987 in a dramatic flight-to-quality over a five month period from January 200 to May 2008, but yields have begun to slowly climb again.
Investors worried about inflation can purchase TIPS (Treasury Inflation Protected Securities) directly from the Treasury Department. TIPS pay interest semi-annually with a rate tied to the increase in the CPI-U inflation index. TIPS have been criticized by many brokerage firms recently for using a CPI inflation adjustment which understates food and energy price increases. More information about TIPS securities.
United State Treasuries are direct debt obligations of the U.S. government and are backed by the full faith and credit of the U.S. government. Individual investors can purchase Treasuries through a brokerage firm or directly online via the Treasury Department's TreasuryDirect website. U.S. Treasury yield quotes from 30 days to 30 years are available here.
RATES ON SERIES I SAVINGS BONDS
The Treasury Department lowered the fixed rate component of their Series I Savings Bonds from 1.20% to 0.00%. The new rate will mean that purchasers of the Series I bonds for the next six months will earn a return equal to the increase in the CPI index (inflation) with no fixed-rate component. The fixed-rate component has been as high as 3.60% for purchasers from May 2000 through November 2000 which means at the current annual inflation rate of 4.84% holders of those older bonds will earn 8.44% for at least the next six months. Economists are projecting an inflation rate of between 2% and 4% over the next year indicating that the Series I Bonds could still outperform savings alternatives. For more information or to purchase US Savings Bonds online visit Savingsbonds.gov. Series I Bonds can be purchased directly in $50, $75, $100, $200, $500, $1,000, $5,000, and $10,000 denominations.
RATES ON SERIES EE SAVINGS BONDS
The Series EE Savings Bonds issued by the Treasury Department will earn a fixed rate of 1.40% for Series EE bonds, issued from May 2008 through October 2008. Series EE bonds issued from May 1997 through April 2005 continue to earn market-based interest rates set at 90% of the average 5-year Treasury securities yields for the preceding six months. The new interest rate for these bonds, effective as the bonds enter semiannual interest periods from May through October 2008, is 2.74%. Market-based rates are announced effective each May 1 and November 1. A 3-month interest penalty applies to bonds redeemed before being held five years.
The Treasury Department announced in December of 2007 that beginning in 2008 each individual taxpayer will be limited to $5,000 in purchases for the Series I Bonds and $5,000 a year for the Series EE Bonds down from the previous limit of $30,000. Savers who used payroll plan deduction will have to be careful to stay under the new rather tight limits.
RATES ON OLDER SAVINGS BONDS
The Treasury Department has been issuing savings bonds since the 1930s as a way to finance government debt. Originally the bonds were sold at a discount to their maturity amount, but in the 1980s savings bonds were changed so that the could interest past the face value of the bond up to a final maturity after which the bond ceases to earn interest. Surprisingly according to the Treasury Department there is over $12 billion in outstanding US savings bonds which are no longer earning interest. If someone in your family owns an old savings bonds check the issue date to ensure that it has not matured, because owners of these savings bonds could reinvest in a Treasury Department product like a Series EE Bond (1.40%), Series I Bond (4.68%), 90-day T-Bill (1.90%), 180-day T-Bill (2.14%), or 2-year T-Note (2.87%) instead of allowing the government to hold their funds interest-free. Savings bonds which have stopped earning interest include: Series E (Issued May 1941 to May 1978), Series H (Issued June 1952 to May 1978), Series HH (Issued January 1980 to May 1988), and all Series A,B,C,D,F,G,J,K bonds.
