I Bond rates to increase on Nov 1

[shotgunner]

I am very glad to be holding something that could soon by making a 6+% return.

Savings I-Bonds Update: New Inflation Rate Announced » My Money Blog

[thefed]

not bad. wish i had snagged some before the fixed portion was 0%

[audreyh1]

Yeah, even though I didn't get the best rates available in the early 2000s, (bought in 2003) I'm pretty happy with my current rate - 5.97% - and I guess I'll get a smidgen higher next 6 months!

Audrey

[DangerMouse]

I noted that the fixed rate for the I-Bond from 1 November is 0.70%, inflation rate is 2.46%.

So will anyone be buying?

[bamsphd]

Quote:

Originally Posted by DangerMouse I noted that the fixed rate for the I-Bond from 1 November is 0.70%, inflation rate is 2.46%. So will anyone be buying?

I bought TIPS at the recent 5 year auction yielding 3.27%. Granted I can not defer the taxes, or hold longer than 5 years as I could with I-bonds, but 3.27% sure beats 0.70% in my book.

The U.S. Treasury - Daily Treasury Yield Curve site lists today's 5 year TIPS yield as 3.66%.

I suppose I might buy some tiny I-bonds as gifts for minors, but that is the only reason I'll buy I-bonds at 0.70% with TIPS above 3%.

[shotgunner]

Just to be clear, I Bonds bought now will earn 5.64% of the next 6 months.

Here's how the composite rate for I bonds issued Nov 2008 - Apr. 2009 was set:
Fixed rate = 0.70%
Semiannual inflation rate = 2.46%
Composite rate = [Fixed rate + (2 x Semiannual inflation rate) + (Fixed rate x Semiannual inflation rate)]
Composite rate = [0.0070 + (2 x 0.0246) + (0.0070 x 0.0246)]
Composite rate = [0.0070 + 0.0492 + 0.0001722]
Composite rate = [0.0563722]
Composite rate = 0.0564
Composite rate = 5.64%

[bongo2]

Strange. Bloomberg lists 5-year tips at 2.7%. I wonder why the difference.

[DoubleDown]

This whole I Bond thing has really turned into a large disappointment. You can only buy 5G in paper bonds and 5G through Tresury Direct per person per year. I mean it's better then nothing but I wish they had kept the limits the way they were a couple of years ago - 30 G each...then you could make these a sigificant part of your portfolio. DD

[Bikerdude]

Quote:

Originally Posted by bongo2 Strange. Bloomberg lists 5-year tips at 2.7%. I wonder why the difference.

The rates change on a daily basis.

[bongo2]

Quote:

Originally Posted by Bikerdude The rates change on a daily basis.

Indeed, and the Treasury has reported the yield almost a point over Bloomberg for a while now (not sure how long, but I noticed it a few days ago). I see from wsj that there are wildly different yields for similar maturities with different issue dates. Bloomberg must be picking the newer issue dates, and Treasury older ones. The older issue dates would have more exposure to deflation, so they yield higher. Very interesting.

PIMCO, by the way, reports a third rate in the middle of the other two.

[NW-Bound]

It may be a matter of time before they raise the annual limit back up. See following excerpt from an AP news release (11/03/08)


The government, raising cash to pay for the array of financial rescue packages, said Monday it plans to borrow $550 billion in the last three months of this year — and that's just a down payment.
...
The nonpartisan Committee for a Responsible Budget estimates all the government economic and rescue initiatives, starting with the $168 billion in stimulus checks issued earlier this year, total even more — an eye-popping $2.6 trillion.

[doxeyweb]

I-bond Composite rate = 5.64%
TIPS yielding 3.27%.

Im not an expert, so could someone explain to me why i would choose TIPS over the current Ibond composit rate? I've done a fair amount of reading on Ibonds. Mabey i just dont understand how TIPS work?:confused:

Thanks...

[Bikerdude]

Quote:

Originally Posted by doxeyweb I-bond Composite rate = 5.64% TIPS yielding 3.27%. Im not an expert, so could someone explain to me why i would choose TIPS over the current Ibond composit rate? I've done a fair amount of reading on Ibonds. Mabey i just dont understand how TIPS work?:confused: Thanks...

The current I-bond base rate is 0.70%. Most Tips are around 3%. When you add inflation which do you think yields more?

One drawback to Tips is that your inflation earnings above the par value can be lost (although rare) in a deflationary period. Not so with I-bonds.

[doxeyweb]

i dont disagree...

but, shouldnt i compare the composite rate of the ibond against the TIPS yield? or is the TIPS rate also adjusted against inflation like the ibond?

just trying to understand the TIPS yield.
Thnx

[Bikerdude]

Quote:

Originally Posted by doxeyweb i dont disagree... but, shouldnt i compare the composite rate of the ibond against the TIPS yield? or is the TIPS rate also adjusted against inflation like the ibond? just trying to understand the TIPS yield. Thnx

TIPS are adjusted for inflation. Treasury Inflation Protected Securities (TIPS). Base rate plus inflation for both. TIPS currently pay about 2.3% more base rate (before inflation is added) than I-bonds.