New I bond rate, 5/1/19 to 10/30/19

Discussion of the Cash portion of the Permanent Portfolio

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jhogue
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New I bond rate, 5/1/19 to 10/30/19

Post by jhogue » Wed May 01, 2019 5:16 pm

Treasury Direct announced the new I Bond rate today. The fixed rate will remain at 0.50%. Combined with the previously announced semi-annual inflation rate of 0.70%, the new composite rate works out to be 1.90%, tax deferred for 30 years and free from state and local taxes.

The new rate is a significant drop from the previous I-bond composite rate of 2.83%. Buying I bonds over the next 6 months may still make sense as part of a long term HBPP Cash strategy, but, for the short term, a 1 year T-bill currently yields 2.37%, or +0.47% more than an I-bond.
“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!"
boglerdude
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Re: New I bond rate, 5/1/19 to 10/30/19

Post by boglerdude » Thu May 02, 2019 2:19 am

Just bought so I woulda been pissed if the fixed rate went up. Now Im just mildly annoyed, wouldve preferred to wait until December, to see how macro events play out
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sophie
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Re: New I bond rate, 5/1/19 to 10/30/19

Post by sophie » Thu May 02, 2019 7:33 am

A question about I bond rates that could help in timing purchases to maximize near-term interest:

The bond I bought in November 2018, after the last rate reset, is currently showing a 1.90% interest rate. This makes sense.

The bond I bought in March 2019, in the same rate period, has a current (today) interest rate of 2.83%. I think in November it will reset to 1.90%, and thus lag 6 months behind on variable rates permanently going forward - is that the case?

So now I'm confused about the rate setting rules. If there's a transient spike in rates (relative to T bills) like what we just experienced, it would be nice to get as many months at that rate as you can. The March 2019 bond is going to get 8 months at 2.83%, while the November 2018 bond will only get 6 months. At what time point do you flip from rate set plan A vs rate set plan B? As in, what would have happened if I'd bought in January instead of March?
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jhogue
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Re: New I bond rate, 5/1/19 to 10/30/19

Post by jhogue » Thu May 02, 2019 8:38 am

boglerdude wrote:
Thu May 02, 2019 2:19 am
Just bought so I woulda been pissed if the fixed rate went up. Now Im just mildly annoyed, wouldve preferred to wait until December, to see how macro events play out
Buying I bonds for Deep Cash means I buy my $10K quota each year based on how I think that the fixed rate will move. That is the rate above inflation that I am guaranteed to yield for the next 30 years.

The inversion of the yield curve began in Dec 2018 and has deepened and widened to this day. That inversion signals a decline in future Treasury interest rates, presently from 6 months out to 5 years. That is why I bought my quota in April, locking in the 0.50% fixed rate, rather than wait for the 1 May 2019 or 1 November 2019 rate resets. As it turns out, Treasury decided to keep the 0.50% fixed rate unchanged on 1 May, but I would not be surprised if they cut it in December. Note also that under the condition of a yield curve inversion, there has been virtually no chance that Treasury would increase the fixed rate.

No reason to be annoyed, boglerdude. I think you made the right decision.


@sophie:
See the chart "When does my bond change rates?" chart at treasury direct.gov.
“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!"
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Re: New I bond rate, 5/1/19 to 10/30/19

Post by Kbg » Thu May 02, 2019 4:48 pm

jh,

Thanks, good info.
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sophie
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Re: New I bond rate, 5/1/19 to 10/30/19

Post by sophie » Fri May 03, 2019 6:40 am

Thanks jhogue, I forgot about that chart.
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