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iShares TIPS Bond Message Board

  • pat2ric pat2ric May 2, 2011 6:09 PM Flag

    Markm or others

    Any coment on the new .023% rate on the I-Bonds???

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    • The bottom line:

      I'm a buyer of I-Bonds this month. They won't make me more prosperous though since they only track the CPI now. (The only exception would be if serious deflation strikes again, since I-Bonds cannot deflate.)

      That said, a 4.6% rate based on the inflation of the last six months is better than most alternatives. Keep in mind that the rate will reset on November 1st. The only thing locked in is the 0.0% fixed rate above and beyond that of inflation. At 0.0%, there is no above and beyond.

      A reminder that if you are considering buying I-Bonds this month, there is no hurry. There is no benefit to buying at the beginning of the month. I therefore tend to buy near the end of the month.

    • The 2.3% rate you see is just the semiannual inflation rate from September of 2010 to March of 2011. The actual annualized rate of I-Bonds bought this month is 4.6%.

      I predicted that 4.6% rate for I-Bonds issued this month on my "Illusion of Prosperity" blog back on April 15th.

      The following is what I wrote so you can see the math...

      I'm predicting a fixed rate of 0.0% and a composite rate of 4.6%.

      In September 2010 the CPI-U was 218.439.
      In March 2011 the CPI-U was 223.467.

      That's a 2.30% increase over the six month period. Inflation has not been very tame.

      Fixed rate = 0.00%
      Semiannual inflation rate = 2.30%

      Composite rate = [Fixed rate + (2 x Semiannual inflation rate) + (Fixed rate x Semiannual inflation rate)]
      Composite rate = [0.0000 + (2 x 0.0230) + (0.0000 x 0.0230)]
      Composite rate = [0.0000 + 0.0460 + 0.0000000]
      Composite rate = 0.0460
      Composite rate = 4.6%

      Here is a list of reasons why I think the fixed rate portion will be 0.0%.

      1. Duh!

      In all seriousness, there is no way that they are going to offer a rate greater than 4.6% on these I-Bonds. No frickin' way.

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