Ted says"
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Some people in other posts are bemoaning the fact that interest rates on short-term bonds/CDs etc. are so low.
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I have to agree with those doing the bemoaning.
Looking at the TIPS on the recent auction history web page ( http://wwws.publicdebt.treas.gov/AI/OFNtebnd), the yield on bonds issued in 2002 is over 3%. That is the base rate before adding the inflation adjustment. The same is true for I bond's (see http://www.publicdebt.treas.gov/sav/sbirate2.htm).
By the way, when looking at the TIPS info (the entries with an asterisk) and comparing them to standard bonds of similar maturity, it looks like the TIPS are 1 to 1.5% lower than standard bonds - i.e. that is the discount the market applies for the inflation protection.
The rates on this page for older bonds are the rates that were paid to those purchasing the bonds at that auction - not the price you can get them at today. I have not been able to find TIPS on the secondary market available for purchase. If anyone has a good source of info on the bond market, let me know - It seems shrouded in secrecy to me. I can find a few bonds on various brokerage inventory lists, but I don't see any TIPS. I would expect the yield on older ones to be close to the yield on the newer ones, if one were to purchase them on the secondary market, so the older ones are good if you bought them when they were new...
One thought for an investment strategy - Buy I bonds when you feel rates are low. I bonds can be cashed in after 12 months with a 3 month interest penalty, or after 5 years with no penalty. If the TIPS rates go back up it may actually make sense to cash in I bonds, pay the penalty and buy TIPS (or newer I bonds). I bonds appear to have the advantage that one can cash them in for full value, where as TIPS can only be sold on the secondary market (prior to maturity). When rates go up, the price paid on the secondary market goes down. I bonds let you lock in the rate for 30 years, but also let you get out before that. The cost for the flexibilty is that the rate is only 1.1 currently vs. 2 for TIPS.
Wayne
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