i-bonds "Inflation rate -0.80%"

[wanaberetiree]

Wow, really?

Just FYI.

 

[audreyh1]

Not surprised at all. Simple look at the 6 month CPIs will tell you that.

 

[karluk]

That's very interesting. To me it's a surprise, since I already knew that i-bonds wouldn't yield anything close to what it would take for me to buy them and haven't been following them closely.

A long time ago I looked into the possibility of a negative inflation adjustment and came to the conclusion that i-bonds offered more deflation protection than TIPS. As I understand it, i-bond yields can decline to zero but can't go negative, whereas TIPS can lose value. A negative inflation adjustment never happened while I owned either type of security, so I'm not certain I understood the rules correctly. I would appreciate it if someone in the know would either confirm or refute my understanding of how i-bonds and TIPS differ when the CPI goes negative.

 

[FIREd]

According to Treasury Direct, the composite yield on I-bonds cannot go negative, indeed. See the example here:

https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_iratesandterms.htm

Fixed rate = 0%, inflation rate = -0.8%, composite rate set at 0%

 

[karluk]

According to Treasury Direct, the composite yield on I-bonds cannot go negative, indeed. See the example here:

https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_iratesandterms.htm

Fixed rate = 0%, inflation rate = -0.8%, composite rate set at 0%

Thanks. The following link indicates that TIPS do lose value in deflation. It sounds as if it may be an academic difference though, since TIPS owners are paid in full, if they hold until maturity.

https://www.treasurydirect.gov/indiv/research/indepth/tips/res_tips_faq.htm#deflation

What happens to TIPS if deflation occurs?

The principal is adjusted downward, and your interest payments are less than they would be if inflation occurred or if the Consumer Price Index remained the same. You have this safeguard: at maturity, if the adjusted principal is less than the security's original principal, you are paid the original principal.

 

[audreyh1]

IBonds rates won't go below zero, but they can stay at zero for as along as needed for inflation to catch up. So there may be some very short-term downside protection, but over the long run probably doesn't matter.

This is assuming deflationary episodes are temporary, of course.

So our IBonds are going to pay zip for 6 months. It happened in 2009 too.

 

[Mulligan]

I bought the full amount for many years after downturn, but gave up and sold them all this year. It just wasnt worth it to me. Piddling to nothing rate then being on the hook for 25% in taxes caused me to sell and invest proceeds into preferred utility stocks. If I had the 3% fixed ones I certainly would have kept them. I am sure they serve a part of a well balanced plan, but I do need balance so I ditched them.


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[bingybear]

you know I did not buy enough Ibonds in 2000 or 2001.. they are still making 4.91%...
haven't bought for years.... it is a scary place.... I did not know ibonds went negative. The thing with negative rates... the mattress may make sense... look at CDs... not much, but better than -

 

[Mulligan]

you know I did not buy enough Ibonds in 2000 or 2001.. they are still making 4.91%...
haven't bought for years.... it is a scary place.... I did not know ibonds went negative. The thing with negative rates... the mattress may make sense... look at CDs... not much, but better than -

I imagine the next cycle will be back in the new normal 1-2% range. This past 6 month cycle caught the big oil collapse. CPI index bottomed out at 233.7 in January and is back to 236.1 for March. Yes, Im tracking closely if it doesn't make it back to last Julys 238.25 number by June; I lose next years 2% COLA. Come on oil...keep climbing back!


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[audreyh1]

I imagine the next cycle will be back in the new normal 1-2% range. This past 6 month cycle caught the big oil collapse. CPI index bottomed out at 233.7 in January and is back to 236.1 for March. Yes, Im tracking closely if it doesn't make it back to last Julys 238.25 number by June; I lose next years 2% COLA. Come on oil...keep climbing back!


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I agree. I think this is a 6 month event.

 

[imoldernu]

Actuals on some older IBonds

 

[MooreBonds]

Actuals on some older IBonds

But that's because they're still in their older, previous rate cycle. After their current 6-month rate lapses, it will reset using the current inflation value of negative 0.8%, and that rate will drop a bit.

I still have some 2000/2001 I bonds with a weighted average fixed rate of 3.3% and will be holding until maturity. If only I had backed up the truck a little further - but had also bought a 10-year TIP at that time with a fixed rate of 4.25% and didn't want too much in a "piddling, lower fixed rate like 3.0% or 3.6% in the I-bond"! Never thought things could get this low!

 

[ziggy29]

Given what has happened to oil prices, I was fully expecting a zero rate (or less, actually).

 

[wanaberetiree]

What did you use to display this data?

 

[audreyh1]

Actuals on some older IBonds

I hope you loaded up on those IBonds!!!

My oldest were bought in Nov 2003, so I'll see zero on those too (1.1% fixed rate)

I think the six-month rate equates to -1.6% annualized, which is how they present the rates.

Bonds bought in 2002 or earlier, which have fixed rates 2% or higher, will still see some interest. Fixed rate - 1.6%

https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_iratesandterms.htm

 

[Mike1968]

What did you use to display this data?

It looks like the Savings Bond Wizard. At least that is what mine looks like with a couple of sensitive columns cropped.

https://www.treasurydirect.gov/indiv/tools/tools_savingsbondwizard_download.htm

 

[imoldernu]

right... SBW
another for Jan 2003
the percentage columns are for "Rate" and "Yield".

 

[audreyh1]

Did I miss the notice here that IBond rates went back up to 1.64%, with 0.1% fixed rate and 0.77% inflation rate? This didn't show up in a search on IBonds.

CPI was up 0.2% for last month, so this next six months may show some inflation since gasoline prices have stopped going down.

I didn't buy any IBonds yet this year. Thinking about it......

High-yield savings accounts are 1.1% or less and 2 yr CDs are paying around 1.45% or less.

 

[Exit 2024]

CPI was up 0.2% for last month, so this next six months may show some inflation since gasoline prices have stopped going down.

CPI-U change for October was -0.045%, you need to look for "Not Seasonally adjusted" number.

 

[audreyh1]

I thought you just add up the prior 6 all items index for April and September to get the Ibond inflation rate (there are some rounding differences).

In October, the September release 6 months all items index added up to 0.7, the annualized inflation used for the Ibond rate was 2x0.77 = 1.54.

For the prior six months (Oct 2014 through March 2015), the all items index added up to -0.8 which is why we had a -1.6 inflation rate applied in the prior 6 months.

 

[Alan]

Did I miss the notice here that IBond rates went back up to 1.64%, with 0.1% fixed rate and 0.77% inflation rate? This didn't show up in a search on IBonds.

The poster titled it "I Bonds"

http://www.early-retirement.org/forums/f28/i-bonds-new-rates-79315.html

 

[Exit 2024]

It is technically not "add up" prev 6 month but rather total change in "not seasonally adjusted CPI-U" for last 6 month. In current low inflation environment difference are covered by rounding but it is not the same when monthly inflation is relatively high.

My above comment was rather about your statement that "CPI was up 0.2% for last month". 100% agree on the rest

 

[audreyh1]

The poster titled it "I Bonds"

http://www.early-retirement.org/forums/f28/i-bonds-new-rates-79315.html

That's why, thanks.