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Inflation-linked savings bond earnings fall to zero
The earnings rate on the newest issue of US inflation-indexed savings bonds will fall to zero between May and November for the first time, reflecting a drop in a gauge of consumer prices.
- Bloomberg
- Published: 23:12 May 2, 2009
Washington: The earnings rate on the newest issue of US inflation-indexed savings bonds will fall to zero between May and November for the first time, reflecting a drop in a gauge of consumer prices.
The Treasury resets rates on savings bonds on the first of May and November.
Savings bonds, unlike Treasury securities, aren't traded on financial markets and are sold to individuals through banks and over the internet in small denominations, starting below $100.
They collect interest for up to 30 years.
The Series I bonds, which were introduced a decade ago, fluctuate in value with the inflation rate. The government also sells fixed-rate Series EE savings bonds.
"The earnings rate combines a 0.10 per cent fixed rate of return with the -5.56 per cent annualised rate of inflation as measured by the Consumer Price Index for Urban Consumers," according to an announcement from the Bureau of Public Debt, released in Washington.
"When the inflation rate is less than zero, a bond's earning rate is less than the fixed rate but the earnings rate is never less than zero," the bureau also said.
This is the first time the earnings rate has reached zero, according to government data provided by officials at the Bureau of Public Debt.
The separate fixed rate, tied to the Treasury market, first fell to zero on May 1, 2008, and at that time the drop reflected as a decline in yields on government securities in the aftermath of the credit collapse.
The Bureau of Public Debt also announced yesterday that Series EE bonds, which aren't adjusted for inflation, will receive a fixed rate of 0.7 per cent from May through November.
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