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Old 05-02-2016, 01:33 PM   #1
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I bonds

Looks like the new rate for I bonds is growing smaller.
The composite rate for the next 6 months is now .26%,
announced today.

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Old 05-02-2016, 01:35 PM   #2
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Quote:
Originally Posted by Ticker View Post
Looks like the new rate for I bonds is growing smaller.
The composite rate for the next 6 months is now .26%,
announced today.

I wonder how many people will buy when the rate goes negative?
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Old 05-02-2016, 09:39 PM   #3
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It is explained on treasurydirect.gov that the 0.26% annualized rate is comprised of a fixed rate of 0.1% plus a semi-annual inflation rate of 0.08%.

0.26% = 0.1% + 2 x 0.08%

However, several Web sites say that the year-on-year inflation rate for March 2016 was 0.9%. I have not found the source for the 0.16% inflation rate used in the formula above. Anybody who knows, please explain.
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Old 05-02-2016, 10:14 PM   #4
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It is my understanding that the inflation rate is calculated over the previous 6-month period then annualized.

I am still buying I-bonds. They have some attractive and unique attributes and I use them exclusively for the inflation-protected portion of my bond portfolio. Low inflation probably won't last forever. And they would actually do OK in a deflationary environment as well since the composite rate cannot go negative.
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Old 05-02-2016, 10:19 PM   #5
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Quote:
Originally Posted by Ticker View Post
Looks like the new rate for I bonds is growing smaller.
The composite rate for the next 6 months is now .26%,
announced today.

I looked at the inflation figures on the US Bureau of Labor Statistics just a few days ago and noticed that the last 6 months seemed to add up to a very small number.
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Old 05-02-2016, 10:23 PM   #6
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Quote:
Originally Posted by NW-Bound View Post
It is explained on treasurydirect.gov that the 0.26% annualized rate is comprised of a fixed rate of 0.1% plus a semi-annual inflation rate of 0.08%.

0.26% = 0.1% + 2 x 0.08%

However, several Web sites say that the year-on-year inflation rate for March 2016 was 0.9%. I have not found the source for the 0.16% inflation rate used in the formula above. Anybody who knows, please explain.
Last 6 months all items here: Consumer Price Index Summary

(Ignore the last column)

I get 0.0 must be rounding difference instead of 0.08% (semi-annual rate).

The prior twelve months was actually 0.9% (last column) as you note - but clearly almost all of that happened in the first 6 months. That first 6 months drove the prior IBond rate.
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Old 05-02-2016, 10:26 PM   #7
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I wonder how many people will buy when the rate goes negative?
Guaranteed to never go negative. Might get stuck at 0% for a long time though.....
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Old 05-02-2016, 11:37 PM   #8
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I would like to buy a government bond linked to healthcare inflation. The fixed portion could be zero for all I care.
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Old 05-03-2016, 06:29 AM   #9
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Originally Posted by aja8888 View Post
I wonder how many people will buy when the rate goes negative?


I have been pleased with my decision over a year ago to toss them all out with the trash and buy more preferred stocks with the proceeds. Now if I had some with that high fixed rate from back in the day I would be hanging on to them.
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Old 05-03-2016, 06:45 AM   #10
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Quote:
Originally Posted by aja8888 View Post
I wonder how many people will buy when the rate goes negative?
While the inflation component can be negative, the composite rate cannot go below zero.
Quote:
If the inflation rate is negative, it can offset some of the fixed rate.

If the inflation rate is so negative that it would take away more than the fixed rate, we don't let that happen. We stop at zero.
Reference: https://www.treasurydirect.gov/indiv...esandterms.htm

Quote:
Originally Posted by audreyh1 View Post
I get 0.0 must be rounding difference instead of 0.08% (semi-annual rate).
The exact change is mentioned below.
Quote:
The 0.26% composite rate for I bonds bought from May 2016 through October 2016 applies for the first six months after the issue date. The composite rate combines a 0.10% fixed rate of return with the 0.16% annualized rate of inflation as measured by the Consumer Price Index for all Urban Consumers (CPI-U). The CPI-U increased from 237.945 in September 2015 to 238.132 in March 2016, a six-month change of 0.08%.
Reference: https://www.treasurydirect.gov/news/...ondratespr.htm
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Old 05-03-2016, 08:08 AM   #11
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I would like to buy a government bond linked to healthcare inflation. The fixed portion could be zero for all I care.
I would also be interested in such an indexed govt bond fund.

I use the Vanguard healthcare fund as a proxy for (long term) healthcare inflation but I don't know that it is a good one.
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Old 05-04-2016, 01:15 AM   #12
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Quote:
Originally Posted by NW-Bound View Post
It is explained on treasurydirect.gov that the 0.26% annualized rate is comprised of a fixed rate of 0.1% plus a semi-annual inflation rate of 0.08%.

0.26% = 0.1% + 2 x 0.08%

However, several Web sites say that the year-on-year inflation rate for March 2016 was 0.9%. I have not found the source for the 0.16% inflation rate used in the formula above. Anybody who knows, please explain.
This comes from the same authorities who gave us zero adjustment for inflation in our SS this year. The only price that went down this year was pot. Does this tell us something?

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Old 05-04-2016, 09:46 AM   #13
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The Government page covering IBonds:
https://www.treasurydirect.gov/indiv...res_ibonds.htm

Yield has changed over the years. Here's the recent return rate from one of my 2001 Bonds. At one point we were getting over 7%. Rules have changed. Back in those days one person could buy up to $30K/yr... No regrets.

Aside... IBonds are not subject to State Tax.
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Old 05-04-2016, 10:19 AM   #14
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Quote:
Originally Posted by MBSC View Post
While the inflation component can be negative, the composite rate cannot go below zero.
Reference: https://www.treasurydirect.gov/indiv...esandterms.htm

The exact change is mentioned below.
Reference: https://www.treasurydirect.gov/news/...ondratespr.htm
Of course they would simply subtract the two CPI-U numbers six months apart!

These monthly CPI numbers are so low that it's mostly rounding error since they only report 1 digit after the decimal point.
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Old 05-04-2016, 01:20 PM   #15
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Thanks all for informing me the I bond rate can never go below zero.

Makes it more attractive to own that way! I'll stick with CD's instead.
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Old 10-19-2016, 06:58 AM   #16
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The I-bond inflation component should be 2.76% effective November 1.

March 2016 CPI-U was 238.132. September 2016 CPI-U was 241.428, for a semi-annual increase of 1.38%.
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Old 10-19-2016, 09:25 AM   #17
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if you're still buying ibonds you're losing the game.
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Old 10-19-2016, 10:59 AM   #18
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I've enjoyed I-Bonds over the years, owned them since 2003, but just like deferred taxes in IRA's/401(k)'s etc, it takes a little planning when cashing them in.

This year I cashed in a bunch and have $10.1k interest to report to Uncle Sam.

DW still has hers with accumulated interest of $28.3k which we plan to cash in in January as we, hopefully, complete the purchase on a house.
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Old 10-19-2016, 12:22 PM   #19
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I have been buying I Bonds since year 2000. I have accumulated interest of 145K
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Old 10-19-2016, 01:25 PM   #20
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I have a couple of CDs maturing in the next few months. I'll probably buy i-Bonds with the proceeds.
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