New I Bond Rate 11/1/17 - 4/30/18

Discussion of the Cash portion of the Permanent Portfolio

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ochotona
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Re: New I Bond Rate 11/1/17 - 4/30/18

Post by ochotona » Sat Feb 24, 2018 9:26 am

My paper I-bonds got converted to electronic and it was super fast. I mailed the bonds on Monday, by end of week got a confirmation from US Treasury in Minnesota they'd been received. Converted and posted a week later. Wow.
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ochotona
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Re: New I Bond Rate 11/1/17 - 4/30/18

Post by ochotona » Tue May 01, 2018 1:17 pm

I Bonds purchased from May 1 to October 31 will carry a composite rate of 2.52% annualized.
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Re: New I Bond Rate 11/1/17 - 4/30/18

Post by barrett » Tue May 01, 2018 4:51 pm

ochotona wrote:I Bonds purchased from May 1 to October 31 will carry a composite rate of 2.52% annualized.
Yes, and the fixed rate is 0.30%. That's the highest since it was also 0.30% in November 2009. The variable inflation-indexed rate for this 6-month period is 2.22%.

And one-year treasuries are now at 2.26%, so even though the PP is not doing much at the moment, at least there are some better alternatives for cash than what we've had for the past 8.5 years. Good to see the one-year treasury rate equal to inflation.
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Re: New I Bond Rate 11/1/17 - 4/30/18

Post by sophie » Tue May 01, 2018 10:10 pm

So the question is: buy this year's I bonds now, or wait until November? If the Fed raises interest rates again that 0.30% fixed rate may go up.

Awesome that interest rates are starting to get high enough that I'm beginning to think about tax-sheltering cash. It's not quite at the point yet where it's worth swapping stocks for cash between taxable and Roth, but it's getting close.
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Re: New I Bond Rate 11/1/17 - 4/30/18

Post by boglerdude » Tue May 01, 2018 11:14 pm

Is it awesome? Isnt the market supposed to keep real rates the same. Real Interest = Nominal Interest - Inflation
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ochotona
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when to buy I-Bonds in 2019?

Post by ochotona » Wed Aug 01, 2018 9:52 am

For 2019,

What should we be looking for in order to get the maximum interest rate? We have three periods when we can buy where the rates are locked for that period:

1/1/19 - 4/30/19
5/1/19 - 10/31/19
11/1/19 - 12/31/19

I'm kind of at a loss concerning which period to target. Should I wait until after the Fed has done its rate hikes for 2019 (and before the next recession starts and QE starts all over again) in order to get the highest FIXED interest rate?
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Re: New I Bond Rate 11/1/17 - 4/30/18

Post by jhogue » Thu Aug 02, 2018 8:47 am

As a longer-term investor in I bonds (ie., over 5 and hopefully up to 30 years), I doubt that it will make much difference when I buy I bonds in 2019. At present, I buy-and-hold I bonds primarily for their guaranteed inflation protection, 30 year tax deferral, and state tax exemption. The I bond yield is important, but secondary in terms of a long term Cash in the PP strategy. To be sure, the I bond yield has consistently beaten yields on 1- 5 year T-bills/notes over the past 5 years. But that has been in the midst of a historically abnormal and artificially induced low interest rate environment.

Going forward, I think that it is a pretty safe bet that I bond rates will rise over the next year. In the past 12 months the 1 year T- bill / I bond spread has narrowed from 71 basis points to just 4 basis points while the I bond fixed rate has risen from 0.1% to 0.3%. Should the FOMC raise the Fed funds rates another two times in 2018 (as Chairman Powell has publicly promised to do) a rise in the I bond fixed rate will almost certainly follow. But, whether these Fed rate hikes definitely continue into 2019—or whether inflation as measured by the CPI-U continues to rise in response-- is not something that can be known for certain in advance.
“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 11/1/17 - 4/30/18

Post by ochotona » Thu Aug 02, 2018 9:14 am

jhogue wrote:
Thu Aug 02, 2018 8:47 am
As a longer-term investor in I bonds (ie., over 5 and hopefully up to 30 years), I doubt that it will make much difference when I buy I bonds in 2019. At present, I buy-and-hold I bonds primarily for their guaranteed inflation protection, 30 year tax deferral, and state tax exemption. The I bond yield is important, but secondary in terms of a long term Cash in the PP strategy. To be sure, the I bond yield has consistently beaten yields on 1- 5 year T-bills/notes over the past 5 years. But that has been in the midst of a historically abnormal and artificially induced low interest rate environment.

Going forward, I think that it is a pretty safe bet that I bond rates will rise over the next year. In the past 12 months the 1 year T- bill / I bond spread has narrowed from 71 basis points to just 4 basis points while the I bond fixed rate has risen from 0.1% to 0.3%. Should the FOMC raise the Fed funds rates another two times in 2018 (as Chairman Powell has publicly promised to do) a rise in the I bond fixed rate will almost certainly follow. But, whether these Fed rate hikes definitely continue into 2019—or whether inflation as measured by the CPI-U continues to rise in response-- is not something that can be known for certain in advance.
JHOGUE, posing the question in another way... I guess if deflation and QE every seem to loom again, then maybe don't pull the trigger on buying more I-Bonds? Maybe spend that increment of dough on 10-30 year US Treasuries?
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Re: New I Bond Rate 11/1/17 - 4/30/18

Post by jhogue » Thu Aug 02, 2018 9:57 am

In case of a return to deflation, LTTs and EE bonds will outperform STTs and I bonds. It’s the barbell effect. You won’t have to buy more long bonds; they will rise in price.

However, unlike TIPS, which can (and have) gone into negative yield, I bonds are guaranteed by the US Treasury to not to go below 0% in yield. Yet another reason to hang onto your I bonds.
“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 11/1/17 - 4/30/18

Post by ochotona » Fri Aug 10, 2018 8:20 pm

Here's an informative I-Bonds and TIPS website

https://tipswatch.com/tracking-inflation-and-i-bonds/
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Re: New I Bond Rate 11/1/17 - 4/30/18

Post by jhogue » Fri Aug 24, 2018 10:51 am

Tipswatch is a great website for tracking the inflation rate of the CPI-U and possible moves in I bond interest rates.

That said, I am not sure why the author also promotes the purchase of TIPS. I find TIPS unsuitable for the HBPP, both because they can produce a negative yield in a deflationary economy, and because they lack the automatic 30 year tax deferral that I find so very attractive in I bonds.
“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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ochotona
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Re: New I Bond Rate 11/1/17 - 4/30/18

Post by ochotona » Mon Oct 15, 2018 8:09 am

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