"We are doing better than the MSM badmouthing indicates."
Maybe, maybe not. A lot of fixed income is going bye bye. Plus there are a number of 'fudge factors' in Govt statistics.
U.S. Offers 0% for First Time on Inflation-Linked Savings Bonds
By Vincent Del Giudice
May 1 (Bloomberg) -- Widows and orphans may be facing more bad news.
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.
``If inflation were to fall to zero or go negative -- a period of deflation -- they'd be collecting zero interest,'' Treat said. He added that the return can't go negative.
Inflation has been accelerating, rather than slowing, as food, fuel and commodity prices climb. The Labor Department's consumer price index rose at an annual rate of 4 percent in March. That was up from 2.8 percent a year before.
The Treasury resets savings bonds rates on May 1 and Nov. 1, and also announced today that Series EE bonds, which aren't adjusted for inflation, will receive a fixed rate of 1.4 percent from May through October 2008.
To contact the reporter on this story: Vincent Del Giudice in Washington vdelgiudice@bloomberg.net.
Last Updated: May 1, 2008 15:31 EDT |
