[Federal Register Volume 60, Number 56 (Thursday, March 23, 1995)]
[Rules and Regulations]
[Pages 15430-15433]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-7134]




[[Page 15429]]

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Part V





Department of the Treasury





_______________________________________________________________________



Fiscal Service



_______________________________________________________________________



31 CFR Part 351



Offering of United States Savings Bonds, Series EE; Final Rule

Federal Register / Vol. 60, No. 56 / Thursday, March 23, 1994 / Rules 
and Regulations 
[[Page 15430]] 

DEPARTMENT OF THE TREASURY

Fiscal Service

31 CFR Part 351

[Department of the Treasury Circular, Public Debt Series No. 1-80]


Offering of United States Savings Bonds, Series EE

AGENCY: Bureau of the Public Debt, Fiscal Service, Department of the 
Treasury.

ACTION: Final rule.

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SUMMARY: This Final Rule amends the offering circular for Series EE 
United States Savings Bonds to reflect rate changes for Series EE 
savings bonds issued on or after May 1, 1995, and the repeal of the 
statutory minimum 4 percent investment yield guarantee. The purpose of 
these changes is to provide for greater flexibility in determining and 
calculating the interest rates and redemption values for Series EE 
savings bonds.

EFFECTIVE DATE: May 1, 1995.

FOR FURTHER INFORMATION CONTACT: Wallace Earnest, Director, Division of 
Staff Services, Savings Bond Operations, Bureau of the Public Debt, 
Parkersburg, West Virginia 26106-1328 (304) 480-6319, or Edward 
Gronseth, Deputy Chief Counsel, or Bob Riffle, Paralegal Specialist, 
Office of the Chief Counsel, Bureau of the Public Debt (304) 480-5192.

SUPPLEMENTARY INFORMATION:

I. Background

    On March 15, 1976, the savings bonds statute, the Second Liberty 
Bond Act (31 U.S.C. 757c(b), later codified at 31 U.S.C. 3105), was 
amended to require that the investment yield on Series E savings bonds 
would not be less than 4 percent per annum, compounded semiannually, 
from the first day of the month after issue date to the last day of the 
month before the redemption date (31 U.S.C. 3105(b)(2)). The purpose of 
this amendment was to provide savings bond owners with a guaranteed 
minimum rate of return no matter when they redeemed their bonds. In 
1982, the Treasury amended the offering circular for Series EE bonds 
held at least 5 years. The returns were linked to yields for 5-year 
Treasury securities. A guaranteed minimum rate was still in effect, but 
it declined over the years from 7.5 percent to 6 percent to the 
statutory 4 percent floor.
    On December 8, 1994, the guaranteed minimum 4 percent was repealed 
(Pub.l. 103-465). This statutory change provided the opportunity for 
Treasury to consider a fresh approach to determining rates for new 
savings bonds and better achieve the goals of the Savings Bond Program.

II. Summary of Amendments

    Section 351.0 is amended to change the effective date of the 
offering circular to May 1, 1995.
    Paragraphs (e) through (i) of section 351.2, are amended to ensure 
that the provisions of those paragraphs do not conflict with or 
contradict other changes to Section 351.2, as described below.
    A new paragraph (j) is added to Section 351.2 to describe changes 
in the terms and conditions for Series EE bonds offered for sale on and 
after May 1, 1995. The following paragraphs describe the terms and 
conditions for such bonds:
    Market Yields. Treasury uses market bid yields for bills, notes, 
and bonds to create a yield curve based on the most actively traded 
Treasury securities. This curve relates the yield on a security to its 
time to maturity. Yields at particular points on the curve are referred 
to as ``constant maturity yields'' and are determined by the U.S. 
Treasury from this daily yield curve. The Board of Governors of the 
Federal Reserve System currently publishes daily Treasury constant 
maturity yields in the Statistical Release H.15, ``Selected Interest 
Rates''. The 6-month and 5-year Treasury securities rates described 
below are derived from these yield curves. (Note: This method of 
determining market rates has been used since the inception of the 
market-based program in 1982).
    Short-Term Savings Bond Rate. No less frequently than on each May 1 
and November 1, Treasury announces a short-term savings bond rate. To 
determine this rate, Treasury compiles 6-month Treasury securities 
rates as of the close of business for each day of the previous three 
months and calculates the monthly average for each month, rounding each 
monthly average to the nearest one-hundredth of one percent. The short-
term savings bond rate is then determined by taking 85 percent of the 
3-month average and rounding the result to the nearest one-hundredth of 
one percent. If the regularly scheduled date for the announcement (for 
example, May 1) is a day when the Treasury is not open for business, 
then the announcement is made on the next business day and is effective 
as of the first day of that month. For bonds entitled to interest 
accruals at the short-term savings bond rate, that rate applies to the 
bond's first full semiannual interest accrual period following each 
announcement of the rate.
    Long-Term Savings Bond Rate. No less frequently than on each May 1 
and November 1, Treasury announces a long term-savings bond rate. To 
determine this rate, Treasury compiles 5-year Treasury securities rates 
as of the close of business for each day of the previous six months and 
calculates the monthly average for each month, rounding each monthly 
average to the nearest one-hundredth of one percent. The long-term 
savings bond rate is then determined by taking 85 percent of the 6-
month average and rounding the result to the nearest one-hundredth of 
one percent. If the regularly scheduled date for the announcement (for 
example, May 1) is a day when the Treasury is not open for business, 
then the announcement is made on the next business day and is effective 
as of the first day of that month. For bonds entitled to interest 
accruals at the long-term savings bond rate, that rate applies to the 
bond's first full semiannual interest accrual period following each 
announcement of the rate.
    Base Denomination. All redemption value calculations are performed 
on a hypothetical denomination of $25, having a value at the beginning 
of the first earning period equal to an issue price of $12.50. 
Redemption values for bonds of greater denominations are in direct 
proportion according to the ratio of denominations. For example, if the 
value of a hypothetical $25 denomination is $26.80--i.e., $12.50 issue 
price plus $14.30 accrued interest--the value of a $50 bond is $26.80 
x  (50 <divide> 25), or $53.60.
    Semiannual Earning Periods and Accrual Dates. Bonds bearing May 1, 
1995, and later issue dates, earn interest during each successive 6-
month period from date of issue to final maturity. Interest accrues, 
immediately following each earning period, on each semiannual 
anniversary of the date of issue, including the date of final maturity.
    Original Maturity. Original maturity occurs at 17 years after date 
of issue. The redemption value of a bond at original maturity shall not 
be less than the face amount (denomination) of the bond.
    Final Maturity. Final maturity occurs at 30 years after the date of 
issue. Bonds cease to earn interest at final maturity.
    Interest Rate and Redemption Values for Bonds Through Original 
Maturity. Short-term saving bond rates are used to determine the 
increase in redemption values for each semiannual accrual date 
occurring on or before 5 years from the date of issue. For a bond 
outstanding [[Page 15431]] more than five years through original 
maturity, long-term savings bond rates are used to determine the 
increase in redemption values for each semiannual accrual date 
occurring after 5 years from the date of issue.
    Interest Rate and Redemption Values for Bonds During An Extended 
Maturity Period. From 17 years after date of issue to the final 
maturity date, the bond continues to earn interest and ceases to earn 
interest at final maturity.
    Outstanding Savings Bonds. No changes are made to the terms and 
conditions for outstanding bonds or to the regulations governing the 
offering of Series E, H and HH savings bonds in 31 CFR parts 316, 332, 
and 352, respectively, and savings notes in 31 CFR part 342, as a 
result of the repeal of paragraph (b)(2) of 31 U.S.C. 3105 and the 
amendment to 31 CFR part 351.

Procedural Requirements

    It has been determined that this Final Rule is not a significant 
regulatory action as defined in Executive Order 12866. Therefore, an 
assessment of anticipated benefits, costs and regulatory alternatives 
is not required.
    This rule relates to matters of public contract, as well as the 
borrowing power and fiscal authority of the United States. The notice 
and public procedures requirements of the Administrative Procedure Act 
are inapplicable, pursuant to 5 U.S.C. 553(a)(2). As no notice of 
proposed rulemaking is required, the provisions of the Regulatory 
Flexibility Act (5 U.S.C. 601, et seq.) do not apply.
    There are no collections of information required by this Final 
Rule, and, therefore, no approval pursuant to the Paperwork Reduction 
Act, is required.

List of Subjects in 31 CFR Part 351

    Bonds, Government Securities.

    Dated: March 10, 1995.
Gerald Murphy,
Fiscal Assistant Secretary.

    For the reasons set forth in the preamble, Part 351 of Title 31 of 
the Code of Federal Regulations is amended as follows:

PART 351--OFFERING OF UNITED STATES SAVINGS BONDS, SERIES EE

    1. The authority citation for part 351 is revised to read as 
follows:

    Authority: 5 U.S.C. 301; 12 U.S.C. 391; 31 U.S.C. 3105.

    2. Section 351.0 is amended, in the second sentence, by removing 
``March 1, 1993'', and adding in its place ``May 1, 1995.''
    3. Section 351.2(c) is amended as follows:
    A. Adding at the end of the heading ``for bonds issued prior to May 
1, 1995'';
    B. In the second sentence, after ``Series EE bonds'', by adding 
``issued prior to May 1, 1995,'';
    C. In the table, in the first column, last line, by revising ``Mar. 
1993, and thereafter'' to read ``Mar. 1993-Apr. 1995''; and
    D. In the table, in the second column, last line, by revising 
``Mar. 2011, and thereafter'' to read ``Mar. 2011-Apr. 2013''.
    4. Section 351.2(e) is amended as follows:
    A. In the paragraph heading, by revising the words ``November 1, 
1982, or thereafter'' to read ``November 1, 1982 through April 1, 
1995.'';
    B. The introductory text of paragraph (e) is revised to read as 
follows:
* * * * *
    (e)* * * The investment yield of a Series EE bond bearing issue 
dates of November 1, 1982, through April 1, 1995, from its issue date 
to each interest accrual date occurring less than 5 years after issue, 
will be as shown in Tables 1, 2, and 3 in the appendix to this part.
* * * * *
    C. Removing ``or thereafter'' at the end of the first sentence of 
paragraph (e)(1) and adding in its place ``through April 1, 1995'';
    D. In paragraph (e)(2)(iii), in the first sentence, after the words 
``May 1, 1989,'' by removing ``or thereafter'' and adding in its place 
``through April 1, 1995''.
    5. Section 351.2(f)(2) is amended by removing ``November 2, 1982'' 
and adding in its place ``November 1, 1982''.
    6. Section 351.2(g) is amended as follows:
    A. In the paragraph heading, after ``Extended maturity periods,'' 
by adding ``for bonds bearing issue dates prior to May 1, 1995'';
    B. In the first sentence, by removing ``of 12 years or less'';
    C. In the heading of paragraph (g)(2), after ``Extensions 
granted,'' adding ``for bonds bearing issue dates prior to May 1, 
1995''; and
    D. By revising the tables in paragraph (g)(2) to read as follows:
* * * * *

----------------------------------------------------------------------------------------------------------------
                                                         Original maturity dates-     Final maturity dates--1st 
 Issues dates--1st day of:        Original terms                  day of:                      day of:          
----------------------------------------------------------------------------------------------------------------
Jan. 1980-Oct. 1980.......  11 years..................  Jan. 1991-Oct. 1991.......  Jan. 2010-Oct. 2010.        
Nov. 1980-Apr. 1981.......  9 years...................   Nov. 1989-Apr. 1990......   Nov. 2010-Apr. 2011.       
May 1981-Oct. 1982........  8 years...................  May 1989-Oct. 1990........   May 2011-Oct. 2012.        
Nov. 1982-Oct. 1986.......  10 years..................   Nov. 1992-Oct. 1996......   Nov. 2012-Oct. 2016.       
Nov. 1986-Feb. 1993.......  12 years..................   Nov. 1998-Feb. 2005......   Nov. 2016-Feb. 2023.       
Mar. 1993-Apr. 1995.......  18 years..................   Mar. 2011-Apr. 2013......  Mar. 2023-Apr. 2025         
                                                                                                                
----------------------------------------------------------------------------------------------------------------
Issues dates--1st day of:   1st extended maturity       Years to final maturity...  Final maturity dates--      
                             dates--.                                               1st day of:                 
                            1st day of:*..............                                                          
                                                                                                                
----------------------------------------------------------------------------------------------------------------
Jan. 1980-Oct. 1980.......  Jan. 2001-Oct. 2001.......  9 years...................   Jan. 2010-Oct. 2010.       
Nov. 1980-Apr. 1981.......  Nov. 1999-Apr. 2000.......  11 years..................   Nov. 2010-Apr. 2011.       
May 1981-Oct. 1982........  May 1999-Oct. 2000........  12 years..................   May 2011-Oct. 2012.        
Nov. 1982-Oct. 1986.......  Nov. 2002-Oct. 2006.......  10 years..................   Nov. 2012-Oct. 2016.       
Nov. 1986-Feb. 1993.......  Nov. 2008-Feb. 2015.......  8 years...................   Nov. 2016-Feb. 2023.       
Mar. 1993-Apr. 1995.......  Mar. 2021-Apr. 2023.......  2 years...................   Mar. 2023-Apr. 2025        
----------------------------------------------------------------------------------------------------------------
* At 10 years after original maturity.                                                                          

* * * * *
    E. In the heading of paragraph (g)(3), by adding ``for bonds 
bearing issue dates prior to May 1, 1995'' after ``extended maturity 
period''.
    7. Paragraph 351.2(h) is amended as follows:
    A. In the heading, by adding ``for bonds issued prior to May 1, 
1995'' after ``Accrual and payment of interest''; [[Page 15432]] 
    B. In the fifth sentence, after ``For bonds with issue dates'', by 
removing ``on and after'' and adding in their place the word ``of''; 
and
    C. In the fifth sentence, after ``March 1, 1993,'', by adding 
``through April 1, 1995,''.
    8. Paragraph 351.2(i) is amended as follows:
    A. In the heading, by adding ``for bonds issued prior to May 1, 
1995'' after ``Tables of redemption values''; and
    B. In the first sentence, after ``November 1, 1982,'', by removing 
``and thereafter'', and adding in its place ``through April 1, 1995''.
    9. A new paragraph (j) is added to Section 351.2 to read as 
follows:
* * * * *
    (j) Market-based interest rate and redemption values--bonds bearing 
issue dates of May 1, 1995, or thereafter. (1) The following 
definitions apply for determining the interest rates and redemption 
values for bonds bearing issue dates of May 1, 1995, and thereafter:
    (i) Market yields. Treasury uses market bid yields for bills, 
notes, and bonds to create a yield curve based on the most actively 
traded Treasury securities. This curve relates the yield on a security 
to its time to maturity. Yields at particular points on the curve are 
referred to as ``constant maturity yields'' and are determined by the 
Treasury from this daily yield curve. The 6-month and 5-year Treasury 
securities rates described below are derived from these yield curves.
    (ii) Short-term savings bond rate. No less frequently than on each 
May 1 and November 1, Treasury announces a short-term savings bond 
rate. To determine this rate, Treasury compiles 6-month Treasury 
securities rates as of the close of business for each day of the 
previous three months and calculates the monthly average for each 
month, rounding each monthly average to the nearest one-hundredth of 
one percent. The short-term savings bond rate is then determined by 
taking 85 percent of the three-month average and rounding the result to 
the nearest one-hundredth of one percent. If the regularly scheduled 
date for the announcement (for example, May 1) is a day when the 
Treasury is not open for business, then the announcement is made on the 
next business day and is effective as of the first day of that month. 
For bonds entitled to interest accruals at the short-term savings bond 
rate, that rate applies to the bond's first full semiannual interest 
accrual period following each announcement of the rate.
    (iii) Long-term savings bond rate. No less frequently than on each 
May 1 and November 1, Treasury announces a long-term savings bond rate. 
To determine this rate, Treasury compiles 5-year Treasury securities 
rates as of the close of business for each day of the previous six 
months and calculates the monthly average for each month, rounding each 
monthly average to the nearest one-hundredth of one percent. The long-
term savings bond rate is then determined by taking 85 percent of the 
6-month average and rounding the result to the nearest one-hundredth of 
one percent. If the regularly scheduled date for the announcement (for 
example, May 1) is a day when the Treasury is not open for business, 
then the announcement is made on the next business day and is effective 
as of the first day of that month. For bonds entitled to interest 
accruals at the long- term savings bond rate, that rate applies to the 
bond's first full semiannual interest accrual period following each 
announcement of the rate.
    (iv) Base denomination. All redemption value calculations are 
performed on a hypothetical denomination of $25 having a value at the 
beginning of the first earning period equal to an issue price of 
$12.50. Redemption values for bonds of greater denominations are in 
direct proportion according to the ratio of denominations. For example, 
if the value of a hypothetical $25 denomination is $26.80--i.e., $12.50 
issue price plus $14.30 accrued interest--on the same redemption date, 
the value of a $50 bond bearing the same issue date is $26.80  x  (50 
<divide> 25) or $53.60.
    (v) Issue date. The issue date of a Series EE bond is the first day 
of the month in which payment of the issue price is received by an 
authorized issuing agent.
    (vi) Semiannual earning periods and accrual dates. Bonds bearing 
issue dates of May 1, 1995, and thereafter earn interest during each 
successive six month period from date of issue to final maturity. 
Interest accrues, immediately following each earning period, on each 
semiannual anniversary of the date of issue, including the date of 
final maturity.
    (vii) Original maturity. Bonds reach original maturity at 17 years 
after date of issue.
    (viii) Final maturity. Bonds reach final maturity at 30 years after 
date of issue. A bond ceases to earn interest at final maturity.
    (2) Interest rates and redemption values for bonds held 5 years or 
less. The interest rate for a Series EE bond bearing an issue date of 
May 1, 1995, or thereafter, for semiannual earning periods during the 
first 5 years from date of issue, is the short-term savings bond rate 
determined as defined in paragraph (j)(1)(ii) of this section. 
Redemption values for semiannual accrual dates occurring on or before 5 
years from date of issue are calculated in accordance with paragraph 
(j)(5) of this section.
    (3) Interest rates and redemption values for bonds held 5 years and 
6 months and longer. The interest rate for a Series EE bond bearing an 
issue date of May 1, 1995, or thereafter, for semiannual earning 
periods beginning 5 years from date of issue through original maturity, 
is the long-term savings bond rate determined as defined in paragraph 
(j)(1)(iii) of this section. Redemption values for semiannual accrual 
dates occurring after 5 years from date of issue, through original 
maturity, are calculated in accordance with paragraph (j)(5) of this 
section, except that the redemption value at the date of original 
maturity, as provided in paragraph (j)(1)(vii) of this section, shall 
not be less than the denomination (face amount or face value).
    (4) Interest rates and redemption values for bonds during an 
extended maturity period. From 17 years after date of issue to the 
final maturity date (the ``extended maturity period'') the bond will be 
subject to the terms and conditions in effect when it is issued, and 
will continue to earn interest as described in paragraph (j)(3) of this 
section, unless the terms and conditions applicable to an extended 
maturity period are expressly amended prior to the beginning of such 
period.
    (5) Redemption value calculations. Interest on a bond accrues and 
becomes part of the redemption value which is paid when the bond is 
cashed. The redemption value of a bond on the accrual date immediately 
following each semiannual earning period is determined as follows:
    (i) The applicable long-term or short-term savings bond rate for 
the semiannual earning period is converted to decimal form by dividing 
by 100, and is adjusted to a semiannual rate by dividing by 2.
    (ii) Using redemption values for the base denomination, as defined 
in paragraph (j)(1)(iv) of this section, this rate is then multiplied 
by the redemption value of the bond at the beginning of the semiannual 
earning period.
    (iii) The resulting interest amount, rounded to the nearest cent, 
is added to the redemption value of the bond at the beginning of the 
earning period to produce the redemption value at the next semiannual 
accrual date. The [[Page 15433]] redemption value of a bond remains 
constant between accrual dates.
    (6) The Secretary's determination. The determination by the 
Secretary of the Treasury, or his delegate, of the market yields, and 
the long-term and short-term savings bond rates, shall be final and 
conclusive.
    (7) Tables of redemption values. Tables of redemption value are 
made available by the Bureau of the Public Debt, Parkersburg, West 
Virginia 26106-1328, prior to the periods during which the redemption 
values are payable.

[FR Doc. 95-7134 Filed 3-21-95; 8:45 am]
BILLING CODE 4810-39-W