Treasury Bond Minimum Now $100, But Nothing To Buy
The Treasury recently announced that as of April 7th minimum investment amount for government bonds will be lowered to $100 (previously $1,000). This includes all Treasury marketable bills, notes, bonds and Treasury Inflation-Protected Securities (TIPS). Thanks for the e-mails.
This means you will be able to build a weekly Treasury Bill ladder for as little as $400. Unfortunately, right now yields are so low that I have no reason to bother. The last T-Bill auction resulted in an investment rate of only 0.527% for the 4-week T-Bill, 1.337% for the 6-month T-Bill, and 2.045% for the 2-year T-Note.
Even TIPS are so much in demand that some of them have been trading with a negative real yield. If you are interested in inflation protection, especially for mid-term periods like 5 years, it may be better to simply buy a Series I Savings Bond, which right now has a real yield (fixed rate) of 1.2% through April 30, 2008. You can buy those already for as little as $25 via TreasuryDirect.gov. (There is a purchase limit of $5,000 online and $5,000 paper, although people have reported being able to buy more online.)
By Jonathan Ping | Treasury Bills and Bonds | 3/23/08, 3:52am
March 23rd, 2008 at 4:18 am
Hi,new reader and new to finance. Please educate me on how savings bonds would lead to inflation protection. Also does this mean that in some cases a savings bond paying 1.2% could be favorable to a 3.xx% interest MMA? Thank you and sorry about the silly questions.
March 23rd, 2008 at 5:48 am
Anon: Series I Savings bonds take inflation into account (http://www.treasurydirect.gov/.....glance.htm), so you’ll match inflation, worst case (typically you’ll do slightly better than inflation by a percent or two lately). They’re also state and local income tax exempt, so there are some tax advantages to them (depending on where you live, and if you have state/local income tax).
It’s probably not favorable to a 3% MMA, but it does give you a low-risk way to invest with some tax advantages; handy for diversification a bit I guess — personally, I’ve abandoned Government Securities for the time being, since the rates are so low…
March 23rd, 2008 at 6:36 am
Anon – Chris gave a good overview, also see my post about I-bonds today.
Actually, Fed rates are so low that I-Bonds might be worth another look…
March 23rd, 2008 at 12:29 pm
I bought my first $5,000, 28-day T-bill on March 11 at a 1.8 percent discount. I’ll be making about $6. Online savings accounts look pretty hot right now.
March 24th, 2008 at 11:22 am
I would NEVER buy Treasury I-bonds again! Bought two two years ago when they were paying over 6% in April 2004. Inflation was continually going up and I was hoping for good returns. But the Treasury Department suddenly and arbitrarily reset the interest base on these bonds to less than 2% even though inflation continued it’s steady upward trend. It was a terrible disappointment. Couldn’t get a straight answer why the rate suddenly was reset. Had to wait the full year before cashing them in. Took the penalty and ran.
March 25th, 2008 at 8:32 pm
Here’s why they can’t pay the interest. They don’t have the money. A brief but unpleasant explntiojn follows taht the goernmenter expalin to you.
March 26th, 2008 at 12:02 pm
Just an aside question, has anyone tried the high yield checking account from charles Schwab?
I would like to hear some reviews from you guys.
Thanks,