Shopping the Treasury for savings bonds or T-bills

When it comes to so-called no-risk investments, direct obligations of the United States Treasury have no peer. But the price you pay for absolute dollar safety may be pretty stiff.

For many, the inflation risk or loss of probable purchasing power may be just as critical as dollar risk.

Among the securities issued by the US Treasury are US Savings Bonds of two types -EE-bonds and HH-bonds. The Treasury also offers Treasury bills (T-bills) with maturities of 3, 6 and 12 months; notes eith maturities of just over one year to 10 years; and bonds with maturities of just over 10 years to 25 years. Numerous govrnment agencies issue securities of various types, and some carry the "full faith and credit of the United States." But only US Treasury securities are direct obligations of the federal government.

EE-bonds and HH-bonds are non-negotiable. That is, once you buy them, they cannot be sold to anyone else without being reissued by the Treasury -and possibly incurring an income-tax liability on the accrued interest at the time of transfer. Since they are not negotiable, their price is fixed. EE-bonds accrue interest each six months by increasing their redemption value. Over an eight-year period EE-bonds bought for $ 50 will double in redemption value to $ 100 at the current rate of 9 percent interest if held to maturity.

HH-bonds pay an average 8.5 percent when held to 10-year maturity, with interest checks payable every six months. The original purchase prices of $500,

While simple and inexpensive to buy and redeem and available in small denominations, EE-bonds and HH-bonds yield considerably less than Treasury bills , notes, or bonds. Treasury bills of three-or six-month maturities have been yielding 14 to 16 percent. Treasury notes and bonds have been yielding 14 to 15 percent. Thus, at 15 percent, T-notes or T-bonds yield as much as 76 percent more than HH-bonds and 67 percent more than EE-bonds, on average. With no difference in security, why settle for the undermarket rate of interest payable on EE-and HHbonds? At least two reasons appear likely:

1. Buying T-bills, notes, or bonds entails minimal expense. You can either pay a fee to a bank or broker to buy T-bills for you or incur the loss of interest on funds if you buy direct. You may buy T-notes or T-bonds directly from the Treasury only at the time of original issue. You are more likely to buy T-notes or T-bonds from a broker and pay a nominal commission. If you hold the bills, notes or bonds to maturity, you will incur no redemption cost. However, if you should sell any of the other Treasury securities before maturity, another borker's commission will be payable.

2. Since Treasury bills, notes, and bonds are negotiable, their price varies daily in line with the competitive interest environment. This shifting of prices concerns many risk-avoiding investors. Sophisticated investors often take advantage of the shifting prices for extra gain.

Which Treasury securities are best? One cannot answer such a question without understanding objectives and concerns about risk. Planning retirement portfolio

I am 57. For the past two years I have been trying to structure a retirement investment fund. I have bought utility stocks, but they have gone down in price. Should I put a certain percentage in stocks, a percentage in money market mutual funds, and some elsewhere? Can you suggest books on preparing for retirement? W.M.

Although utility stocks (or bonds) that you may have bought over the past two years may be lower in price now, I expect them to recover and rise to higher price levels once interest rates decline. As long as two years ago, utility income stocks were considered a good buy, but as interest rates rose to unprecedented levels, these stocks became even better buys. They still remain in a good buying range, in my opinion. At present you might want to keep around 40 percent of your funds in income stocks, discount bonds, or both; 20 percent in longterm growth stocks or shares in a growth mutual fund; and 40 percent in a money market mutual fund. Keeping a large share of your funds liquid will enable you to buy other bargains if and when they show up in the market. The Reading List you requested includes a number of books on retirement and investment fund planning. For a free copy, send a self-addressed, stamped, long (No. 10) envelope to Moneywise, Box 102, Mercer Island, WA 98040.