Inflation Index Bonds Now Paying 0%

Thursday, May 01, 2008 | 05:00 PM

Have you noticed what the interest rate TIPs now pay?

How about Zero? 

Thanks to a flight to safety, the fixed rate on the newest issue of Series I inflation-indexed savings bonds has for the first time fallen to zero.

Heres' the Treasury Department press release:

I Bond Earnings Rate 4.84%, Fixed Rate 0.00%

The earnings rate for Series I Savings Bonds is a combination of a fixed rate, which applies for the life of the bond, and the semiannual inflation rate. The 4.84% earnings rate for I bonds bought from May through October 2008 will apply for their first six months after issue. The earnings rate combines a 0.00% fixed rate of return with the 4.84% annualized rate of inflation as measured by the Consumer Price Index for all Urban Consumers (CPI-U). The fixed rate applies for the 30-year life of I bonds purchased during this six-month period. The CPI-U increased from 208.490 to 213.528 from September 2007 through March 2008, a six-month increase of 2.42%.

Bloomberg observed:

"Financial market turmoil has caused the fixed rate on the newest issue of Series I inflation-indexed savings bonds to fall to zero for the first time, according to the U.S. Treasury's Bureau of Public Debt. Investors still get a return on the investment as long as consumer prices rise, because the government pays additional interest in lockstep with inflation.

The fixed rate's decline to zero reflects the decline in returns in money markets in the aftermath of the credit collapse, said Kim Treat, a spokesman for the bureau in Washington. The government promotes the savings bonds as "low- risk'' investments for individuals that protects them against inflation.

The so-called earnings rate on the bonds issued between May and October, which is tied to the rate of inflation, is 4.84 percent, the bureau said in a press release. The fixed rate, on top of the compensation for rising consumer prices, is officially 0.00 percent, down from 1.2 percent when the Series I was last issued, in November.

That means investors get no returns on their investments other than compensation for inflation. The fixed rate has never fallen so low since inflation-indexed savings bonds were introduced in the 1990s, Treat said."

All things considered, that's rather astonishing . . .


Series EE To Earn 1.40% Fixed Rate, When Bought From May Through October 2008
Treasury Direct, May 1, 2008

U.S. Offers 0% for First Time on Inflation-Linked Savings Bonds
Vincent Del Giudice
Bloomberg, May 1 2008

Thursday, May 01, 2008 | 05:00 PM | Permalink | Comments (25) | TrackBack (0) add to | digg digg this! | technorati add to technorati | email email this post



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Everything is astonishing, nowadays.

Posted by: Marcus Aurelius | May 1, 2008 5:03:08 PM

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