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Inflation bonds for sale
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January 24, 1997: 3:47 p.m. ET
Treasury department reveals more about 10-year inflation indexed notes
From Correspondent Katherine Barrett
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NEW YORK (CNNfn) - Next time a broker says, "have I got a tip for you!" she may be talking about the Treasury's new inflation-protection bonds - TIPS. The ten-year notes totaling $7 billion will be auctioned for the first time next week.
They're designed to raise the American savings rate by giving buyers assurance that their initial investment will always keep pace with inflation.
The bonds pay a fixed interest rate. It's the value of the principal that is raised or lowered every six months to match inflation.
Indeed, the interest rate or yield these bonds pay will be much lower than ordinary Treasury notes. Moreover, investors don't get the inflation-adjusted payout until they sell the bonds, even though they are taxed on the upward or downward revisions every year.
"I think it could have real changing effects on the financial markets of our country, it could cause investors to think more about real rates of return and that in turn could spawn new kinds of products," said Treasury Secretary Robert Rubin.
Financial planners are a bit less enthusiastic about these bonds than the U.S. Treasury is.
"For most people, they're going to see different situations where they need cash flow coming in to live on, or they have tax problems." That may not make the bonds useful for all situations, said Joel Isaacson, financial planner.
But for ultra-conservative investors who don't need high current income, and who could put the bonds in tax sheltered IRA or 401K plans, the new Treasury TIP might be just the ticket.
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