A Bond to Beat Inflation Blues; New Treasury Notes Offer Protection, but Also Carry Tax Consequences
When it comes to default risk, U.S. Treasury securities are about the safest investments around. But default is not the only risk for bond investors. In the past 20 years, inflation has eaten away at these seemingly safe investments, often leaving bondholders with little but crumbs in the end.</br></br>Starting in January, the Treasury will offer 10-year "inflation protection notes" whose value is designed to rise with inflation, thus guaranteeing investors a "real" rate of return on their money.</br></br>Treasury Secretary Robert E. Rubin said the securities "offer Americans a way to save that fully protects their investments against inflation."</br></br>Treasury officials said the notes, modeled on inflation-indexed securities offered in Canada, will be sold in denominations of $1,000. The concept will likely be expanded to other maturities, perhaps up to 30 years, later in 1997.</br></br>Rep. Bill Archer (R-Tex.), chairman of the House Ways and Means Committee, which writes tax law, urged the Treasury to delay introducing the notes, which he said will make it harder for policymakers to predict what the government's future obligations will be.