Savings Bond Alert #030
Tuesday, May 1st, 2007
Categorized as: Savings Bond Alerts
Treasury lowers Savings Bond rates
The inverted yield curve continues to wreak havoc with Savings Bond interest rates. When the yield curve is inverted, it means that short-term interest rates are higher than long-term rates. Normally long-term rates are higher. A long lasting inversion, such as the current one, signals a coming recession.
The Treasury looks at long-term rates when calculating what Savings Bonds should pay, because investors can hold them for 30 years. Investors, however, tend to look at competing short-term rates when calculating whether to invest in Savings Bonds.
This morning the Treasury lowered the fixed-base rate on new Series I Savings Bonds to 1.3%, from the previous 1.4%. The Treasury also lowered the rate on new Series EE bonds to 3.40%, down from the previous 3.60%.
The new rates give the current fiscal year a decent chance of setting a new record the lowest amount of investment in Savings Bonds. The government’s fiscal year starts in October. During the year’s first six months, new investments in Savings Bonds were less than a third of the dollars invested during the same months the previous year.
Typically, Savings Bond investments are lower during the second six months of the year than during the first six months. With an annual investment rate of $3.4 billion for the first six months of FY-2007, a weak second half could push investments for the year below $3.11 billion, the record low point set in FY-1982. That year both short and long term rates were above 14%.