New I Bond Rate 11/1/18 to 4/30/18

Discussion of the Cash portion of the Permanent Portfolio

Moderator: Global Moderator

User avatar
jhogue
Executive Member
Executive Member
Posts: 320
Joined: Wed Jun 28, 2017 10:47 am

New I Bond Rate 11/1/18 to 4/30/18

Post by jhogue » Thu Nov 01, 2018 10:21 am

Treasury Direct announced the new I Bond rate this morning. The new fixed rate, which will apply from 1 November 2018 to 30 April 2019, is 0.50%. Added to the previously announced variable rate of 2.33%, the new composite rate will be 2.83%, tax deferred for 30 years and free from state and local taxes.

With 1 year Treasuries currently priced at 2.72%, I bonds look like an attractive addition to “Deep Cash” in the HBPP.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
User avatar
pugchief
Executive Member
Executive Member
Posts: 2717
Joined: Tue Jun 26, 2012 2:41 pm
Location: suburbs of Chicago, IL

Re: New I Bond Rate 11/1/18 to 4/30/18

Post by pugchief » Thu Nov 01, 2018 9:40 pm

jhogue wrote:
Thu Nov 01, 2018 10:21 am
Treasury Direct announced the new I Bond rate this morning. The new fixed rate, which will apply from 1 November 2018 to 30 April 2019, is 0.50%. Added to the previously announced variable rate of 2.33%, the new composite rate will be 2.83%, tax deferred for 30 years and free from state and local taxes.

With 1 year Treasuries currently priced at 2.72%, I bonds look like an attractive addition to “Deep Cash” in the HBPP.
How is that attractive? 2.83% on a 30 year bond is awful, even if tax deferred, IMHO.
User avatar
Xan
Administrator
Administrator
Posts: 2226
Joined: Tue Mar 13, 2012 1:51 pm

Re: New I Bond Rate 11/1/18 to 4/30/18

Post by Xan » Thu Nov 01, 2018 9:55 pm

pugchief wrote:
Thu Nov 01, 2018 9:40 pm
jhogue wrote:
Thu Nov 01, 2018 10:21 am
Treasury Direct announced the new I Bond rate this morning. The new fixed rate, which will apply from 1 November 2018 to 30 April 2019, is 0.50%. Added to the previously announced variable rate of 2.33%, the new composite rate will be 2.83%, tax deferred for 30 years and free from state and local taxes.

With 1 year Treasuries currently priced at 2.72%, I bonds look like an attractive addition to “Deep Cash” in the HBPP.
How is that attractive? 2.83% on a 30 year bond is awful, even if tax deferred, IMHO.
You can cash it out at (just about) any time you like.
boglerdude
Executive Member
Executive Member
Posts: 355
Joined: Wed Aug 10, 2016 1:40 am

Re: New I Bond Rate 11/1/18 to 4/30/18

Post by boglerdude » Thu Nov 01, 2018 11:35 pm

Whats that term, where you can "pay off" a mortgage by holding bonds of the same amount?
User avatar
ochotona
Executive Member
Executive Member
Posts: 2562
Joined: Fri Jan 30, 2015 5:54 am

Re: New I Bond Rate 11/1/18 to 4/30/18

Post by ochotona » Fri Nov 02, 2018 5:27 am

It's tax deferred, no interest rate risk. Zero duration. It's more like an inflation protected CD.
User avatar
Kriegsspiel
Executive Member
Executive Member
Posts: 1617
Joined: Sun Sep 16, 2012 5:28 pm

Re: New I Bond Rate 11/1/18 to 4/30/18

Post by Kriegsspiel » Fri Nov 02, 2018 5:36 am

Or a 30 year bond with a pseudo-put option?
User avatar
jhogue
Executive Member
Executive Member
Posts: 320
Joined: Wed Jun 28, 2017 10:47 am

Re: New I Bond Rate 11/1/18 to 4/30/18

Post by jhogue » Fri Nov 02, 2018 8:34 am

Pugchief,

Do you have a better alternative for deep cash than I bonds?

I can readily imagine that Warren Buffett doesn't bother investing any of his petty cash in I bonds (or bank CDs for that matter). For those of us in more down-to-earth tax brackets, however, I bonds have all the attractions of Treasuries (safety, liquidity, guaranteed yield) with a bunch of other handy features thrown in for free.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
User avatar
sophie
Executive Member
Executive Member
Posts: 3053
Joined: Mon Apr 23, 2012 7:15 pm

Re: New I Bond Rate 11/1/18 to 4/30/18

Post by sophie » Fri Nov 02, 2018 9:02 am

Even assuming the Fed increases interest rates again in December, the tax deferral and future inflation protection are very attractive. Unless you figure that a) your future tax bracket will be similar to your current one, and b) you expect that T bills or bank CDs will do as well as I bonds in keeping up with inflation. That's not always the case though, and certainly was not until just this past year.

T-bills are still beating the pants off 5 year bank CDs, for those of us with state/local taxes to contend with.
User avatar
pugchief
Executive Member
Executive Member
Posts: 2717
Joined: Tue Jun 26, 2012 2:41 pm
Location: suburbs of Chicago, IL

Re: New I Bond Rate 11/1/18 to 4/30/18

Post by pugchief » Fri Nov 02, 2018 12:38 pm

Xan wrote:
Thu Nov 01, 2018 9:55 pm
pugchief wrote:
Thu Nov 01, 2018 9:40 pm
jhogue wrote:
Thu Nov 01, 2018 10:21 am
Treasury Direct announced the new I Bond rate this morning. The new fixed rate, which will apply from 1 November 2018 to 30 April 2019, is 0.50%. Added to the previously announced variable rate of 2.33%, the new composite rate will be 2.83%, tax deferred for 30 years and free from state and local taxes.

With 1 year Treasuries currently priced at 2.72%, I bonds look like an attractive addition to “Deep Cash” in the HBPP.
How is that attractive? 2.83% on a 30 year bond is awful, even if tax deferred, IMHO.
You can cash it out at (just about) any time you like.
After holding for 5 years. Otherwise, there is a penalty of 3 months. And you can't cash it out in the first year under any circumstances. So yeah, maybe if you are certain that you won't need the $ for at least 5 years. Who is that certain?
User avatar
pugchief
Executive Member
Executive Member
Posts: 2717
Joined: Tue Jun 26, 2012 2:41 pm
Location: suburbs of Chicago, IL

Re: New I Bond Rate 11/1/18 to 4/30/18

Post by pugchief » Fri Nov 02, 2018 12:42 pm

jhogue wrote:
Fri Nov 02, 2018 8:34 am
Pugchief,

Do you have a better alternative for deep cash than I bonds?
Define deep cash. I can't see locking up my cash for long terms. Too much uncertainty and potential lost opportunity value. I'd rather own a more liquid instrument in exchange for a slightly lower rate. Vanguard Prime MM is paying 2.21%, although granted, it's not tax deferred.
User avatar
jhogue
Executive Member
Executive Member
Posts: 320
Joined: Wed Jun 28, 2017 10:47 am

Re: New I Bond Rate 11/1/18 to 4/30/18

Post by jhogue » Sat Nov 03, 2018 2:57 pm

1. Liquidity preference is, by definition, subjective and personal. There is no second guessing your personal choice for your portfolio, Pug. If ya gotta have it, ya gotta have it.

2. That said, consider this: At some point (hopefully), the HBPP investor’s portfolio grows so large that likely rebalance and emergency fund scenarios are covered. A hypothetical HBPP in the $1 million to $2 million range calls for a Cash position of $250,000 to $500,000. To me, that is a lot of cash! Devoting just one third of that position to “deep cash” in I bonds could raise the annual yield from Cash with very little chance of ever having to redeem an I Bond in order to rebalance a sudden drop in one of the volatile assets.

3. In other words, it is not that your VMMXX @ 2.21% is “wrong” and my I bonds @ 2.83% are “right.” I do think, however, that avoiding I bonds is like leaving free money on the table. I like free money.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
User avatar
ochotona
Executive Member
Executive Member
Posts: 2562
Joined: Fri Jan 30, 2015 5:54 am

Re: New I Bond Rate 11/1/18 to 4/30/18

Post by ochotona » Sat Nov 03, 2018 4:27 pm

"Deep Cash" is that amount of cash above and beyond what is likely to be needed under the worst likely personal crisis situations. Where only 5% of scenarios would require more cash, for example. It's a guess, it's imprecise.

Because of my job in the crappy oil industry, I have an emergency fund equal to 12 months of expenses. That will always be in the bank and liquid T-Bills and some paper currency. Beyond that is deep cash space.

My oldest I-Bonds is 3.5 years old. At 5, I won't count it as deep any longer.
Post Reply