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Clues From Hm Treasury And The Government

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Okay, so the news from Friday 19th May and the weekend that no-one has picked up on so far is that:

1. Premium bond prizes have been cut. See the news link:


INVESTORS in Premium Bonds will have less chance of winning the big prizes after June 1 when the prize fund rate drops from 3% to 2.95%.

2. On Saturday, 13th-issue and 41st issue index-linked savings certs were announced.

IIRC, the 12th and 40th issues had 1st year inflation linking of +0.65% and +0.55%. The new releases have 1st year inflation linking rates of +0.8% and +0.7%.

At a time when CPI has just started to show a "surprise" (!!!) increase, I find it interesting that they would re-issue these certs with HIGHER offsets against their particular measure of inflation, RPI.

On the one hand, if this was any "normal" situation, one could be instantly cynical and simply conclude that any potential "bonus rate" payer would cut margins or boost margins to always favour themselves. This implies that the treasury and others all think RPI measured inflation is heading lower and they can afford a higher payout. In reality of course, an unrealistically low RPI figure plus a bit more as a bonus is still an unattractively low return rate for your money.

On the other hand, there's been a small cut in premium bond rates and the previously mentioned corresponding increase in index-linked savings certs rates. Now we all know that there has been a record increase in the amount of money on deposit with HM treasury in the last few years, mostly into premium bonds. We know lottery ticket purchases have also seen very high purchases during roll-over weeks. I think people here have already concluded this could be the act of millions of financially worried, nee desperate people.

My question therefore is: With all the property speculation around, and with central banks growing increasingly suspicious of reported core inflation as a measure of real inflation, are the relevant parts of the BoE / treasury / government trying to push people's savings in the right direction, i.e. away from desperate speculation and into something that protects them from something real and "impending" - inflation.

Any thoughts and comments welcome.


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I like all of these products - if used correctly.

BTW - I don't know if you are aware that there are several issues of savings Certs a year, and it is not unusual for the terms to be slightly different?

I have found premium bonds a good place to park some cash when I'm not sure about other, more "exciting", investments.

At a guess the Government may be actually steering people in a way to profit the Government themselves. The whole National savings and Gilt scene gets jigged around to try to provide a cheap source of credit for the Government. They can get it "wrong". For example those who purchased (directly) Gilts at 9% yield are doing very well - whilst the Gov't is paying over the odds.

If you suspect disinflation then Gilts (bought directly) are excellent.

A simpler play for this scenario, for the average punter, are the likes of fixed rate saving certs / capital bonds.

I also suggested, some time back, that STR's / FTB's may well consider placing part of their cash in Index linked Certs. The housing cycle has shown RPI (no matter how flawed) to outstrip HPI on the downward part of the cycle - without exception. A 5 year note should time the bottom well from here IMO.

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