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Americans Stampede Into Inflation-Linked Bonds, Smashing Records

By Elizabeth Stanton

American savers piled into inflation-protected savings bonds, scooping up more in December alone than they had for any full previous year, as consumer prices soared across the U.S. 

The U.S. Treasury Department building in Washington, D.C., U.S., on Saturday, June 26, 2021. The Federal Reserve might consider an interest-rate hike from near zero as soon as late 2022 as the labor market reaches full employment and inflation is at the central bank’s goal. Photographer: Stefani Reynolds/Bloomberg

The government sold $2.78 billion of Series I savings bonds, which pay a fixed interest rate plus inflation, in the month after selling $1.07 billion of the bonds in November, according to Treasury Department data. 

The December figure is $1 billion more than the previous full-year record, which came in 2018, when a jump in oil prices drove inflation toward 3%. Annual inflation is running now at a four-decade high of 7%, the result of booming consumer demand and supply-chain snarls sparked by the pandemic. 

The government began selling Series I bonds in 1998. The fixed interest rate, which is set for new bonds every six months, has been 0% since May 2020. That has done little to discourage buyers, though, because the inflation component of the bonds, which also resets twice a year, is currently paying out an annual rate of 7.12%.

Demand, in fact, would be up even more if it weren’t for the hard cap the government puts on on-line purchases of the securities  — $10,000 per person per year.

More stories like this are available on bloomberg.com

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