What to do with those 0% Fixed-rate I-Bonds?

[JDARNELL]

To see what the next variable rate will be. Also, if using the gift box strategy that would require 2025 or later delivery, to minimize the time between purchase and delivery/redemption in the event you want to ditch them.

I could see the gift box strategy but wasn’t clear on the reason to wait. I am selling the remaining 0 fixed rates ones this week and was gonna go ahead and repurchase. I guess I could set the money into the mm and collect the interest til April then purchase.

 

[Gumby]

I could see the gift box strategy but wasn’t clear on the reason to wait. I am selling the remaining 0 fixed rates ones this week and was gonna go ahead and repurchase. I guess I could set the money into the mm and collect the interest til April then purchase.

My settlement fund at Vanguard is paying north of 5%, so waiting is not detrimental.

 

[JBTX]

In our case I am selling all of our 0% ibonds and likely 0.2%. Ibonds. Keeping ones with rates higher than that. In Nov bought $10k at 1.3% for living trust and self employed business, and will do so again in 2024. In 2024 will buy $20k each for me and wife in giftbox for 2025 and 2025 at 1.3%.

Making sure to sell the ones I’m selling after 3 months of the 3.38% rate.

 

[Koolau]

Very good discussion. I've learned a lot. My only I-bonds were purchased long ago and still carry (IIRC) over 3% fixed. I'm hanging on to them until I get a break in reducing my 401(k) balance - like during the next down turn. At that point, it will be okay to take taxable gains from my old I-bonds. I'm trying to titrate my taxes and avoid IRMAA. Tall orders when your delayed-taxation money is growing. Once again - a great problem to have, but it is a problem all the same. YMMV

 

[JDARNELL]

My settlement fund at Vanguard is paying north of 5%, so waiting is not detrimental.

that is what I was thinking also.

 

[pb4uski]

I redeemed most of our I-Bonds on Jan 1 and DW and I still have $10k in gifts for each other to be delivered on Jan 1 2025. Bought some TIPs today with real yields of ~1.7-1.9%.

While Treasury Direct is "ok", I'm not keen on it and prefer to get away from it and TIPs are just as attractive to me. TIPs are in a tax-deferred account.

 

[ERhoosier]

Koolau raises a good point. When to sell iBond holdings is very individual case-specific. Including consideration of tax consequences (and for some potentially IRMAA consequences).

 

[maestro]

I got into the hype and wisdom of I bonds in '21-'23 to park money I didn't need. Gifts to grandchildren, too. My thought is that if I still don't need the money, why redeem, and incur the tax and miss on interest before the 5 years are up, especially if you're doing Roth conversions? Don't need or want more tax liability than I already have. YMMV. Peace.

 

[orbops]

I bought I-bonds in 2022 and 2023, and redeemed them all in Jan 2024. The money market at Fidelity and Vanguard are at 5%, better than the return from I-bonds.

 

[big-papa]

Been buying since 2017 with no plans to redeem. What matters most is the fixed rate. Ibonds were intended to held for the long term, hence the inability to redeem unless you've held them for 1 year and the loss of 3 months interest if redeemed before 5 years. We'll continue to purchase, even though we recently retired.

FYI you can get a pretty good estimate on the fixed rate by calculating the average 5 year TIPS yield for the previous 6 months before the next update. By mid April or so it will have converged on whatever the new fixed rate is going to be for newly purchased Ibonds beginning in May.

Take the average 5 year TIPS rate from Nov 2023-April 2024 and multiply by 0.65, rounding to the nearest 0.1%. The Treasury is pretty opaque about how they come up with the fixed rate, but this estimation method has been pretty accurate since 2015.

Source for 5 year TIPS rate: https://fred.stlouisfed.org/series/DFII5

Cheers.

 

[hotwired]

Tipswatch +1

The TIPSWatch blog is great. I’m curious to read about his forecast for the 10-year TIPS auction on Jan 18th. My hope is for a 1.5% real yield. This will fill out my rung for 2035 and maybe I should buy enough to cover 2036. That might be the last rung for my TIPS ladder, so it is tempting.

I second the vote for Tipswatch. A little bit geeky, but if you take it in bites, it can be very informative. I too will be grabbing some 10 - 15 year rungs today on secondary market.

Also, re iBonds, TipsWatch actually has a chart (if it hasn't already been mentioned in this thread) where he gives you the ideal time to cash out of iBond batches with the lower inflation factors (i.e. 0 - .4%). I will be buying 50K worth in April at the 1.3% level, adding to my already 50K+ at the .9% level and this will be our "cash reserve" for the rest of our lives, basically. (It's almost like putting 50K into a ROTH...no FEd tax until you cash in, no state tax ever)

 

[big-papa]

I second the vote for Tipswatch. A little bit geeky, but if you take it in bites, it can be very informative. I too will be grabbing some 10 - 15 year rungs today on secondary market.

Also, re iBonds, TipsWatch actually has a chart (if it hasn't already been mentioned in this thread) where he gives you the ideal time to cash out of iBond batches with the lower inflation factors (i.e. 0 - .4%). I will be buying 50K worth in April at the 1.3% level, adding to my already 50K+ at the .9% level and this will be our "cash reserve" for the rest of our lives, basically. (It's almost like putting 50K into a ROTH...no FEd tax until you cash in, no state tax ever)

I'd say it's closer to a 401K or IRA than a Roth since it will eventually be federally taxed.

Cheers.

 

[audreyh1]

The TIPSWatch blog is great. I’m curious to read about his forecast for the 10-year TIPS auction on Jan 18th. My hope is for a 1.5% real yield. This will fill out my rung for 2035 and maybe I should buy enough to cover 2036. That might be the last rung for my TIPS ladder, so it is tempting.

As of last Friday TIPSWatch was predicting 1.69% real.

Real yields have been volatile over the last week, but at this point the Treasury’s estimate for a full-term 10-year TIPS is a real yield of 1.69%, down 14 basis points in a week. The most recent 10-year TIPS trading on the secondary market closed Friday at 1.66%.

 

[hotwired]

Oh! Yes, you're absolutely right! (Now the H.S.A. on the other hand...don't get me started!)

 

[bjorn2bwild]

As of last Friday TIPSWatch was predicting 1.69% real.

When I put my order in this morning at Fidelity, the expected yield shown was 1.755.
I know the final yield can vary depending on auction participation results.

 

[audreyh1]

When I put my order in this morning at Fidelity, the expected yield shown was 1.755.
I know the final yield can vary depending on auction participation results.

Interesting. Although Fidelity expected yield isn’t very reliable.

 

[bjorn2bwild]

Interesting. Although Fidelity expected yield isn’t very reliable.

Thanks,
I took a second look at the depth of book secondary price for the 1/15/2033's and found some at 1.839.
So I cancelled and replaced.

 

[Chuckanut]

I don’t have much dry powder left. But, I did put in a small order for tomorrow’s TIPS auction. Later this year when they reopen this auction, I might buy more depending on the fixed rate. I want a good chance to have a real return after inflation and taxes. So I am looking for fixed rates above 1%. There are no guarantees, of course.

 

[tulak]

Interesting. Although Fidelity expected yield isn’t very reliable.

I posted this in the T-Bill thread a few days ago:

"Vanguard estimates 1.66% and Fidelity estimates 1.755%."

https://www.early-retirement.org/fo...nds-discussion-2024-a-120449.html#post3038946

And as you mentioned, tipswatch says Treasury's estimate is 1.69%.

We will know for sure tomorrow.

 

[audreyh1]

Yes, I’ll be checking it out.

 

[Sunset]

I don’t have much dry powder left. But, I did put in a small order for tomorrow’s TIPS auction. Later this year when they reopen this auction, I might buy more depending on the fixed rate. I want a good chance to have a real return after inflation and taxes. So I am looking for fixed rates above 1%. There are no guarantees, of course.

I just bought a little (very little) with leftover money in my IRA.
Hopefully it's 1.7%

 

[foxfirev5]

FWIW, regarding today's 10 year TIPS auction. The expected yield is simply a ballpark number. Fido's estimate was set last week at the announcement. I usually anchor that number to the 10 year nominal rate and follow it until auction time. Over the last week the 10 year rates have risen so the TIPS at today's auction may have a 1.75% coupon. Or not. A lot could depend on rate swings this morning as well as the high amount of TIPS being auctioned. My call (guess) 1.625%. In any event I'm a buyer at anything over 1% real. The size of the purchase may vary.

 

[bjorn2bwild]

I pulled these quotes from a Wednesday conversation over at bogleheads.
PS - Credit to Kevin M

Using quotes pulled from Schwab a few minutes ago, the July 2033 (closest to 10y maturity) ask yield is 1.82%, which is seasonally adjusted 1.86%. The Jan 2033 ask yield is 1.86%, which is seasonally adjusted 1.86%; when settlement mm/dd = maturity mm/dd, SA yield = quoted yield, and settlement for a purchase today is Jan 18, which is only three days different than maturity mm/dd.

Based on today's yields my estimate for the auction yield would be 1.85%, with a coupon of 1.750%. Maybe the estimated yield should be a bit higher, because seasonality will put downward pressure on the price by Jan 31, the settlement date, and "big money investors" definitely factor seasonality into their bids. Yields are very flat in this range of the yield curve, especially after factoring in seasonality, so I wouldn't expect an extras 6 months to make much difference between the Jul 2033 and Jan 2034 yields.

https://www.bogleheads.org/forum/viewtopic.php?t=386240&start=2550

 

[audreyh1]

Well they were right on the money!

Coupon 1.75%, real yield 1.81%.

 

[SALTedOut]

Does anyone know if you can schedule an iBond redemption for a future date? I'm considering a sale for 2/1 but I'll be out of the country without good internet connection. I read (on Google) you can schedule in advance by going to ManageDirects on the TD website and then selecting Redeem Securities.

I did this and selected the bonds I want to sell and the options are then "Submit" or "Cancel". I'm hoping when I click "Submit" it will come up with another window that asks what date I want to sell but I don't want to click it and actually submit the transaction today.

For those that have sold recently when I hit Submit does it then ask for a sale date?