The economics of savings bonds

Abstract

Series EE Savings Bonds have provided floating rate returns since 1982. They also contain valuable embedded options, including an early redemption option, a guaranteed minimum rate option, and a tax-timing option. Our analysis indicates that the simulated risk-return performance of Savings Bonds has been relatively attractive compared to other default-free assets. Thus, Savings Bonds appear to be worthy of consideration by individual investors. Our regression analysis indicates that, over the 1990 through 2001 period, investors considered both interest rates and economic conditions in their EE Savings Bond purchase and redemption decisions.