ROANOKE TIMES
Copyright (c) 1997, Roanoke Times
DATE: Wednesday, January 22, 1997 TAG: 9701220027
SECTION: BUSINESS PAGE: B-6 EDITION: METRO
DATELINE: WASHINGTON
SOURCE: Associated Press
The government plans to raise $7 billion Jan.29 in its first auction of securities designed to shield investors from inflation while shrinking the cost of government borrowing.
Treasury Secretary Robert Rubin said Tuesday the notes will be auctioned quarterly in denominations of $1,000, the minimum purchase, and will mature in 10 years. But since they will be tied to the government's Consumer Price Index, their value will increase as prices increase.
``Inflation can erode savings, whether the savings are those of a retiree, a person saving for college or a big institutional investor,'' he said. ``This product offers advantages to middle-income savers which have not been available before now.''
Rubin contended the new notes would be ``a good deal for both investors and taxpayers.'' Treasury officials describe the inflation-indexed securities as ``win-win'' because investors escape the risks of inflation and the government gets lower borrowing costs.
Interest earned on the new securities is not expected to be as high as earnings on notes with similar interest rates and maturities because of the added inflation protection.
By auctioning the notes, the Treasury will let the market set the interest rate. Rubin declined to speculate on the amount of the initial coupon.
The Clinton administration thinks the new notes will attract middle-class investors interested in preserving their investment while earning interest.
As an example, if inflation increases 3 percent in a given year, a $1,000 note would be adjusted upward to $1,030. Interest would paid semiannually based on the inflation-adjusted value of the security at the time.
The securities will be available through brokers and directly through the Treasury.
LENGTH: Short : 42 linesby CNB