Anyone Else See This?

[FinanceDude]

Treasury tightens limits on savings bonds

Individuals will be able to buy only $5,000 worth of series EE or I U.S. Savings Bonds annually, starting Jan. 1. That is down from a limit of $30,000 annually, which has been in effect since 2003.

Because the limit applies to both electronic and paper purchases of bonds, it means an individual can invest up to $20,000 annually in the bonds by purchasing $5,000 of each in each format. The limit is counted against a person's Social Security or Taxpayer Identification Number, which must be provided when the bonds are bought.

The U.S. Treasury Department has the power to adjust the limit annually. It was last at $3,000 in 1973.

The change was made "to refocus the savings bond program on its original purpose of making these non-marketable Treasury securities available to individuals with relatively small sums to invest," according to an announcement from the Treasury.

It noted only about 2% of bonds purchases by individuals are for more than $5,000 now.

The minimum price for an EE bond is $25. I Bonds have a $25 limit when purchased electronically, $50 if bought in paper form.


I'm not sure how it will effect anyone on here.........

 

[W2R]

How strange! If there was a recent "run" on savings bonds, I sure didn't know about it. I don't have any and did not think that was unusual.

I wonder what this means as far as the economy and the future.

Also I wonder if Uncle Sam is slowly moving towards a future without savings bonds at all?

 

[FinanceDude]

How strange! If there was a recent "run" on savings bonds, I sure didn't know about it. I don't have any and did not think that was unusual.

I wonder what this means as far as the economy and the future.

Also I wonder if Uncle Sam is slowly moving towards a future without savings bonds at all?

They can't.....too much to pay for. I remember how quietly 30 year Treasuries came back, after they were gone for a few years.

 

[Robert the Red]

Link to announcement:

Annual Purchase Limit For Savings Bonds Set at $5,000

New limit starts 01 Jan 2008, so there's a small window of opportunity left.

 

[Nords]

The change was made "to refocus the savings bond program on its original purpose of making these non-marketable Treasury securities available to individuals with relatively small sums to invest," according to an announcement from the Treasury.
I'm not sure how it will effect anyone on here.........

I wonder how it affects investments by the People's Republic of China?

 

[bamsphd]

Weird, I would have expected them to increase the limit, not lower it.

With the new limit, I guess I won't be buying them except perhaps as gifts for children.

 

[clifp]

My I am sure somebody thought this was a good idea, but for the life me I don't understand why.

Isn't there typically at least 100 basis point difference between Treasury bond and EE bond rate and the same thing for TIPs. Plus the adminstrative cost for the government decrease as the quantity bought increase, why does the government want to increase the servicing cost of our national debt.

 

[bamsphd]

My I am sure somebody thought this was a good idea, but for the life me I don't understand why.

Isn't there typically at least 100 basis point difference between Treasury bond and EE bond rate and the same thing for TIPs. Plus the adminstrative cost for the government decrease as the quantity bought increase, why does the government want to increase the servicing cost of our national debt.

Well there is the little matter of the buyer instead of the government being able to control the maturity date of savings bonds. If you bought i-Bonds and TIPS in 2000, today you would probably have sold the TIPS, but would still be holding onto those i-Bonds.

 

[jazz4cash]

Treasury tightens limits on savings bonds

The change was made "to refocus the savings bond program on its original purpose of making these non-marketable Treasury securities available to individuals with relatively small sums to invest," according to an announcement from the Treasury.

It noted only about 2% of bonds purchases by individuals are for more than $5,000 now.

.....

Ok, but HOW would this CHANGE affect individuals with small sums to invest....it WONT, and only affects 2% of current issues, so there must be some other agenda involved.

 

[samclem]

Just a guess--Maybe this is a move by the Treasury to increase money flows to banks t help with the present credit [-]crisis[/-] crunch? I would think that the type of conservative investor who would normally buy handfulls of EE bonds might instead choose a bank CD if he were prohibited from buying all the bonds he/she wants. Would the additional $ going to banks help them get through the liquidity problem of not being able to sell their mortgage loans right now?

Again, just a guess.

 

[bamsphd]

Just a guess--Maybe this is a move by the Treasury to increase money flows to banks t help with the present credit [-]crisis[/-] crunch? I would think that the type of conservative investor who would normally buy handfulls of EE bonds might instead choose a bank CD if he were prohibited from buying all the bonds he/she wants. Would the additional $ going to banks help them get through the liquidity problem of not being able to sell their mortgage loans right now?

Again, just a guess.

I think you have hit it. I was just reading:

Savings bonds are a slow but steady way to build assets, designed to meet the needs of the smallest saver. How many banks will let you start a savings account with only $50 -- and with no maintenance fee! In fact, because they make no money on them, banks aren't crazy about savings bonds and have successfully lobbied Congress to limit any one person's purchases to $30,000 face value per calendar year.

-- page 97
-- The Only Investment Guide You'll Ever Need
-- Andrew Tobias (copyright 2005)​

 

[Htown Harry]

Treasury's Federal Register posting says little more than "we're changing because we want to change". No public comment period is required, apparently, so the notice doesn't have the usual regulatory gobbledegook about alternatives, winners and losers, etc.

Looking for some context, I found these nuggets in the Bureau of Public Debt's 2007 annual statement on the Treasury Direct site:

• $197 billion in savings bonds are outstanding 9/30/07, down from $203B a year earlier
• "Non-marketable securities", which include the savings bonds, have an average interest rate of 4.9%, down from 5% a year earlier
• $4.4 trillion in marketable securities (notes, bills, bonds and TIPS) are held by the public (meaning savings bond holdings are about 5% as large)

There's nothing I found in the balance sheet notes to suggest accelerating savings bond purchases.

 

[samclem]

Maybe the USG bailout of the banking system has begun, at least in a very limited way. To the extent the Treasury has to pay higher interest on other forms of public debt than they would have paid on EE bonds and I-Bonds, this represents an indirect subsidy to banks.

Again, if I've guessed right about this. . .

I know this for sure: It's got nothing to do with refocusing on the beloved small investor.

P.S. Was anybody buying I-Bonds anyway? The guaranteed (above inflation) interest has whithered to insignificance over the years.

 

[Geoffrey]

A perverse thought . . . EE bonds are guaranteed to double in 20 years. That's a guaranteed rate of return of about 3.52 percent. Japan went through at L-O-N-G stretch where the Japanese were lucky to get a 1 percent return on their savings. Could the Treasury foresee such a scenario happening here and be taking preemptive action? I suppose I'm being a little paranoid . . . .

 

[Helena]

Hummm.... just the other night on the Suze Orman show
she read a letter from someone who was worried about
the safety of bank CDs... I thought Suze would chastise
the person for having bank CDs... but to my surprise
Suze advised the person that US Treasury bonds, notes
and bills are direct debt obligations of the US government
and are more safe than a bank CD.


I was planning to sock away some extra money next
year using savings bonds for tax deferral reasons...
so this change does affect my plans.

 

[W2R]

A perverse thought . . . EE bonds are guaranteed to double in 20 years. That's a guaranteed rate of return of about 3.52 percent. Japan went through at L-O-N-G stretch where the Japanese were lucky to get a 1 percent return on their savings. Could the Treasury foresee such a scenario happening here and be taking preemptive action? I suppose I'm being a little paranoid . . . .

I don't think you are. This post makes a lot of sense to me.

If interest rates go down for a long stretch, my guess is that housing prices would rise (since so many people buy according to monthly payments, instead of total price). Falling interest rates would alleviate the mortgage crisis and associated economic difficulties, since people could sell their homes for enough to pay off their subprime mortgages.

Perhaps the Treasury is anticipating and preparing for such an eventuality.

 

[prgsdw]

It's unfortunate that the limit was dropped. I just came across this change today, unfortunately, because I was planning a large purchase in I bonds this year based on a number of factors (maybe others see these differently):

* Warren Buffets' recent comments about investors needing to realign their expectations to what he sees as a reality of < 7% returns for the near to mid term future (7% after taxes and inflation gets you pretty close to the 1.2% fixed portion of an I-bond minus the risk).
* The fiscal irresponsibility of our government and the unwillingness of both congress and the government to address the issues of Medicare, Social Security, the national debt.
* Estimates that the Federal Reserve has increased the circulating money supply by 50% since 2001 (heard this a few days ago on CNBC or Fox Financial news)
* Soaring commodity prices and my believe that the Fed's attempt to bail out Wall Street with a flood of cheap money is going to let the inflation genie out of the bottle.

To me, the government sees the end of the manageable inflation period and has reduced the limits on inflation protected securities that are not marketable. This not only pushes safe haven money to CD's as suggested above, but also to be invested in Wall Street.

Maybe I have a dim view on this, but it's troubling that we've had 18 debates on the democratic side, probably at least 1/2 that many on the Republican side and we just don't seem to hear boo about the first baby boomers being eligible for SS starting last month - that they will be eligible for Medicare in 3 years - and that we can't afford to meet our promises to them over the long haul without significant change.

 

[youbet]

Could the new policy be as simple as keeping EE and I bonds for folks with little to invest and directing the high rollers to T bills and notes and TIPS?

 

[prgsdw]

It very well may be and I might be reading too much into it...

However, I don't know that those who came close to the old limits are high rollers in all cases - and not just a frugal person living below their means as many here do, but with a lower risk tolerance. It also makes me wonder why we'd want to discourage Americans from owning our own debt?

Not to mention that T-Bills and TIPS function very differently from I-bonds for example. Because I-bonds are not traded, there is no risk of principal loss. Even in periods of deflation, where the fixed portion of return is offset by a negative inflation rate there is a guarantee that the I-bond will not return an amount less than 0.

The other troubling piece of this to me is they split the amount that could be invested not only by series, but by form of purchase. If they are interested in protecting the little guy, why would they do that? I live in a rural area, many of my neighbors do not have internet access or computers. So instead of a $10k limit on I-bonds and a $10k limit on EE bonds, they have a $5k limit for each electronically purchased or paper purchased. That seems to me to be against the little guy investor.