Came across this little nugget from the US Dept of Treasury yesterday (though it was announced in early December 2007):

The annual limitation on purchases of United States Savings Bonds will be set at $5,000 per Social Security Number, effective January 1, 2008.

The reduction from the $30,000 annual limit in effect for both series since 2003 was made to refocus the savings bond program on its original purpose of making these non-marketable Treasury securities available to individuals with relatively small sums to invest.

[There’s more about this here.  The process of limiting the purchases is especially onerous and comical: to reach the max you will have to buy both online and in person, in some cases buying at face value, others at half, though the limitation is the same.  This is admittedly the same as the previous policy to meet the max … but still: WTF?]

So I feel like I’m going all conspiracy-theory … but this announcement comes right when investors are fleeing anything affected by subprime (which is everything) causing a big credit crunch and hurting lots of stocks; only federal debt seems to be trusted.  While even slightly-advanced investors can still easily buy-up other forms of federal debt above the new $20,000 Savings Bonds limit, Savings Bonds are the most accessible instrument for novice investors. If When we hit a recession and the populace jumps out of the stock market, I would assume US Savings Bonds will be one of the first places to go?  Well, now the Treasury only lets you move $20,000 (and only $10,000 from the comfort of you computer), perhaps in an effort to prop up the stock market by limiting your alternatives?

A question/answer to help to dismiss/bolster my conspiracy theory:

Q. How much is annually purchased in US Savings Bonds?  Is there a big %-change during market drops?

A. Here’s the US Savings Bonds purchasing data for the last ten years, with the %-change over the previous year next to it.  (courtesy of the SF Gate’s recent article and some quick excel).  Take a look:

2007 $3.4 Billion (-60%)
2006 8.3B (+31%)
2005 6.3B (-20%)
2004 7.9B (-33%)
2003 11.8B (+20%)
2002 9.8B (+48%)
2001 6.6B (+26%)
2000 5.2B (+10%)
1999 4.7B (-2%)
1998 4.8B

The brief tech-bubble recession caused a pretty big market drop … “Nasdaq peaked at $6.7 trillion in March 2000 then plummeted to $1.6 trillion by October 2002.” (Source) … and 2002 saw the largest positive %-change in Savings Bonds purchases.  Coincidence?  Maybe.  One might also attribute the drop in Savings Bonds purchases since 2003 to the good returns in the recovering stock market?  (I don’t know what the deal with the 2007 number is … a really frothy economy? Or (more probably) just a partial number for the not-yet-done 2007?)

So while the flight-to-Savings-Bonds during a market fall may hold some water … my conspiracy theory about the new limits being put inplace to help keep the stock market up doesn’t seem right when you consider that the total issuance of US Savings Bonds is only in the single-digit billions.  The new US Savings Bonds limits really won’t make much difference in keeping money in the stock market.

And on an even more pragmatic note, I must say that it’s really not that hard to buy Treasury Bills/Notes/Bonds whose purchasing limits are much more generous $5M (per security type).  The Treasury Direct website - the same one you would use to buy Savings Bonds - has a ‘non-competitive’ auction bid process (it’s not ‘competitive’ because you agree to buy at whatever rate the auction determines rather than being able to set a stop/limit) that is right there for anyone interested.  So even with the Savings Bonds limits, there’s still lots of ways to buy lots of federal debt.

Update: I changed ‘recession’ to ‘market fall’ throughout the original post … although they’re correlated, I should’ve been clearer in my word choice.

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