New Savings Bond investments down 50%
Tuesday, March 13th, 2007
Categorized as: Savings Bond investment rate
According to data provided by the US Treasury, new investments in Savings Bonds for the current fiscal year (Oct 06 - Sep 07) are running at an annual rate of about $4 billion. This is down a little more than 50% from the rate of investment a year ago.
Series EE investments are up a bit from last year's sluggish pace, so the entire drop is due to a lack of investor interest in Series I bonds. I bond investments make up 51% of the total, down from 77% last year.
So far, this is the slowest year for I bond investments since fiscal years 1999 and 2000, which came right after I bonds were introduced.
Moreover, in a typical year, new investments in Savings Bonds are much higher from October through February than from March through September, so these investment numbers are more likely to get worse than to get better as the fiscal year continues.
Readers of my book have access to an online graph showing the level of Savings Bond investments since Series I bonds were introduced in 1998. Check your Book Notes for the link.
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Tom,
I'm assuming the Treasury will have to set the I bond fixed rate higher in May if they want to increase savings bond purchases, especially since we can assume that the inflation component will be fairly low in May (and we'll have an even better idea on Friday when the next-to-last CPI data point for the new rate is released).
However, what troubles me is that at the same time, real TIPS yields have been moving lower, 0.4-0.5% lower than their highs last year.
Any intuition how the Treasury might strike a balance between these differences?
Hi Mario - my guess - and that's all it is - is that the I bond fixed rate will continue to track with TIPS yields.
The amount the government borrows this year will be near all-time highs, but the amount it borrows using Savings Bonds will be near all-time lows.