TAILIEUCHUNG - Reinventing Savings Bonds - Peter Tufano Daniel Schneider

In general, we find that the loan market is informationally more efficient than the bond market prior to and in periods directly surrounding events, such as corporate (loan and bond) defaults, and bankruptcies. First, we find that loan prices fall more than bond prices of the same borrower prior to an event, even after adjusting for risk in an event study setting. Second, we find that loan prices fall less than bond prices of the same borrower on a risk- adjusted basis in the periods directly surrounding an event. Third, we find that our results are robust to alternative explanations which control for security-specific characteristics, such as. | Harvard Business School Working Paper Series NO. 06-017 Reinventing Savings Bonds Peter Tufano Daniel Schneider Peter Tufano Harvard Business School and NBER and D2D Fund Daniel Schneider Harvard Business School Copyright 2005 Working papers are in draft form. This working paper is distributed for purposes of comment and discussion only. It may not be reproduced without permission of the copyright holder. Copies of working papers are available from the author. Reinventing Savings Bonds Savings Bonds have always served multiple objectives funding the U. S. government democratizing national financing and enabling families to save. Increasingly this last goal has been ignored. A series of efficiency measures introduced in 2003 make these bonds less attractive and less accessible to savers. Public policy should go in the opposite direction . savings bonds should be reinvigorated to help low and moderate income LMI families build assets. More and more these families saving needs are ignored by private sector asset managers and marketers. With a few relatively modest changes the Savings Bond program can be reinvented to help these families save while still increasing the efficiency of the program as a debt management device. Savings bonds provide market-rate returns with no transaction costs and are a useful commitment savings device. Our proposed changes include a allowing Federal taxpayers to purchase bonds with tax refunds b enabling LMI families to redeem their bonds before twelve months c leveraging private sector organizations to market savings bonds and d contemplating a role for savings bonds in the life cycles of LMI families. Peter Tufano Harvard Business School and D2D Fund and NBER Soldiers Field Boston MA 02163 ptufano@ Daniel Schneider Harvard Business School Soldiers Field Boston MA 02163 dschneider@ We would like to thank officials at the Bureau of Public Debt BPD for their assistance locating information on the Savings Bonds program. We

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