GOVERNMENT: Boost for Bonds

Among the casualties of the Government's tight-money policy have been owners of U.S. savings bonds, who hold $56 billion of the total $277 billion Treasury debt. As other interest rates have risen, the rate on savings bonds has fallen far behind. As a result, sales have slumped (in 1956 the Government hoped to sell $5.65 billion, sold only $5 billion), and the number of bonds cashed in has soared. In January alone, the Treasury paid out $136 million more than it sold in Series E bonds, after the highest redemption level for any month in nearly eleven years.

To get sales back ahead of cash-ins, the Treasury last week asked Congress to permit a boost in rates, retroactive to Feb. 1 on all new bonds. It wants to raise Series E and H interest rates to 3¼% as a start, boost rates as high as 4¼% if necessary.

If Congress approves, the boost will come through the same device used in 1952 to raise interest from 2.9% to 3%. The maturity period of bonds was then cut from ten years to nine years, eight months. The new plan would cut maturity to eight years, eleven months, and pay 3% interest after only three years. (The holder will not get the 3¼% unless he holds the bond till maturity.) A similar rate increase will be made on Series H bonds, which are sold in denominations of $500 and more, with semiannual interest payments. Series J and K bonds, sold in denominations up to $100,000, would be discontinued, because big investors are now more interested in marketable Government bonds.

To keep present owners of E and H bonds from cashing them in to buy new bonds, the Treasury warned: since interest rates are graduated, bonds now 2½ years old or more will average a higher yield if held to maturity than the 3¼% interest which the new bonds will average.