Sales of Savings Bonds Spurt in Many Localities : But Report That U.S. May Cut Minimum Rate Fails to Stir Activity in Southland

The Treasury’s announcement that it may lower the minimum guaranteed interest rate on U.S. savings bonds has triggered a surge of bond buying in parts of the country, with some banks reporting that they have been emptied of bonds.

“I don’t have numbers, (but) I can tell you we are having problems keeping them in stock,” Holly Cherico, a Citibank spokeswoman in New York, said Friday. “We are definitely busier. It’s more than just the end-of-the-month business.”

Further fueling bond buying has been the steady decline of interest rates, which has heightened the attractiveness of the guaranteed minimum 7.5% return on bonds held for five years.

“It’s probably not as much as doubled, but there has been a significant increase over the past couple of weeks,” said Loretta Johnson, a spokeswoman for Oregon Bank in Portland, Ore.

However, spokesmen at major California banks--including Bank of America, Wells Fargo and Security Pacific--reported no unusual bond buying activity.

“Your guess is as good as mine,” a Bank of America spokesman said when asked to explain why other banks around the country were reporting the increased activity.

Spokesmen for the Treasury Department had no ready explanation either, but they stressed that no final decision has been made on an interest rate cut.

Speculation on 6.5% Rate

The renewed interest in the bonds apparently stems from a press conference Wednesday at which Treasury officials, in response to questions, said the government may soon reduce the guaranteed minimum yield on the popular Series EE savings bonds to save the government money and avoid excessive competition.

No time frame or amount was given for the rate cut, but analysts have speculated that the minimum rate will be lowered to 6.5%.

As of 1982, savings bonds held five years or longer pay an average of a floating rate set every May and November at 85% of the market value of five-year Treasury securities. In addition, the Treasury has guaranteed that bonds held five years shall accrue at least 7.5% interest--no matter what happens to the floating rate.

As open-market interest rates dropped in the last year, so have returns on such investments as money-market funds, certificates of deposit and even passbook checking accounts at some banks.

The Bank Rate Monitor newsletter said bank money-market accounts at 100 institutions that it surveyed yielded an average of 6% annually in the week ended Wednesday, compared to 7.5% for bonds held five years.

“In the month of June, we sold 3,555 bonds. In July, we’ve sold 34,703,” said Ruth Berry, a spokeswoman for Citizens Fidelity Bank in Louisville, Ky. “The people who handle our bonds said it was a direct result of the interest rates.”

Steve Meyerhardt, public affairs officer for the Treasury’s savings bond division in Washington, said he would have no monthly sales figures until next week.

“My understanding is there will be no (rate) change for August, but I don’t know about future months,” he added.

Meyerhardt said month-end sales generally are heaviest because bonds draw interest for the entire month, regardless of when in the month they are bought.

Volume Heavier Than Usual

But a spot check of banks indicated that volume this week was heavier than usual.

“We normally have no inventory problem,” said Mitch Zoellner, assistant vice president for retail operations at Bank One in Columbus, Ohio. “Right now, it’s depleted.”

Deposit Guaranty National Bank, Trustmark National Bank and Sunburst Bank’s main offices in Jackson, Miss., were picked clean of bonds in higher denominations on Thursday, and their stock of lower denomination bonds was thinned substantially.

“The volume (Thursday) and (Friday) has just been spectacular,” said Marguerite Mickels, a vice president at Deposit Guaranty, Mississippi’s largest bank.

Berry, the Louisville Citizens Fidelity spokeswoman, noted that in June, most of the bonds sold were in $25 and $50 denominations, “but in July, they’ve been in the $500 to $1,000 range.”

In Jackson, banks that could not meet customer demands sent applications for bonds directly to the Federal Reserve Bank in New Orleans. Banks in other areas said they issued rain checks on bond orders or referred customers to other bank branches.