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# VICE PRESIDENT GORE, SECRETARY RUBIN UNVEIL NEW INFLATION- INDEXED SAVINGS BONDS - page 7 / 8

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rest will be available in May of 1999. The bonds can be redeemed after six months and earn interest for 30 years. Investors redeeming bonds before five years are assessed a three-month earnings penalty. Individuals can purchase up to \$30,000 worth of I Bonds each calendar year. I Bonds are sold at face value.

## HOW DOES THE SERIES I-BOND EARN INTEREST?

(Continued from page 1)

for All Urban Consumers (CPI-U) over a six- month period before each May and November.

For example, the semi-annual inflation rate we will announce on November 1, 1998, reflects the change in the CPI-U from April 1998 through September 1998 while the semi-annual rate announced on May 1, 1999, measures the change in the CPI-U from October 1999 through March 1999.

Treasury combines fixed and inflation rates to create the earnings rate, which is the basis of Series I interest computations. The earnings rate, however, is more than simple addition. A mathematical formula is used that assures that inflation indexing is recognized each month.

The construction and application of the earnings rate creates a lag between the measurement of inflation and the adjustment of bond values to reflect that inflation.

This lag happens because we have to have an inflation measure to use in coming up with bonds earnings rate. For example, the rate we announce in May of each year uses inflation information as of the end of March.

This information is reported by the Bureau of Labor Statistics sometime in April.

The lag comes in because the earnings rate applies to all bonds with issue dates from May through October.

In the case of a May bond, the first time interest would be credited would be June, three months after the March date we used to measure inflation. As with the May rate the November earnings rate uses an inflation measure as of September, so there will always be a lag between when we measure inflation and when an inflation adjustment actually shows up in a bond’s earnings.

The CPI-U is reported by the Bureau of Labor Statistics. The Bureau of Labor Statistics operates independently of Treasury and Treasury has no control over the determination, calculation or publication of the index. The regulations for the Bond set forth the actions Treasury will take in the event the CPI-U is revised, rebased, discontinued, or fundamentally altered.

Fixed rates of return may be different for bonds of different issue dates. So, there can be more than one earnings rate announced each May 1 and November 1. Each earnings rate is effective for six months – May through October or

through

April.

## It

applies

to

all

rate

periods

(for

bonds

of

the

appropriate while it is in

issue dates) that begin effect. A rate period is

the

six

months

during

which

a

## Series

I Bond rate. A

earns a specified earnings bond’s first rate period starts

on its issue begin every

date. New rate periods six months after that.

The earnings rate will reflect deflation as well as inflation. Series I Bonds, however, will never decrease in value. Even if deflation

is enough to offset the fixed rate completely, the earnings rate will not

go below zero.

## In this situation,

Series I Bonds will maintain their values until the earnings rate will again produce an increase in value.

Detailed information on the earnings rate and other investment considerations are available in the Offering Circlular (31 CFR 359) and Regulations Governing I Bonds (31 CFR 360).

HERE S WHAT IT TAKES TO INTRODUCE A NEW BOND

M any plans, decisions and the efforts of a team of workers are needed to introduce a new Savings Bond.

These include policy makers, financial experts, lawyers to write regulations, and artists, designers and printers to complete the paper

bond.

## Bonds

have

a

more

contemporary look than earlier series, but continue to provide the safety and security that Americans expect from their investment in Treasury securities.

The Ball Group of Lancaster, Pennsylvania, led by Marlin Miller, Creative Director, provided creative development services.

Award-winning illustrator and portrait artist Gary Ciccarelli, of Dearborn, Michigan, created original portraits of each of the honorees. In addition, he created a background vignette reflective of an important event in each individual’s life.

The art was created from photographic reference material provided by the estates of each honoree, or from foundations and

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