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

Posted: Wed May 01, 2019 5:16 pm
by jhogue
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.

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

Posted: Thu May 02, 2019 2:19 am
by boglerdude
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

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

Posted: Thu May 02, 2019 7:33 am
by sophie
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?

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

Posted: Thu May 02, 2019 8:38 am
by jhogue
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.

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

Posted: Thu May 02, 2019 4:48 pm
by Kbg
jh,

Thanks, good info.

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

Posted: Fri May 03, 2019 6:40 am
by sophie
Thanks jhogue, I forgot about that chart.