Comments on: Time to dust off the Savings Bond interest rate crystal ball http://www.savings-bond-advisor.com/time-to-dust-off-the-savings-bond-interest-rate-crystal-ball/ Tue, 06 Jan 2009 03:07:24 +0000 http://wordpress.org/?v=2.0.4 by: Tom Adams http://www.savings-bond-advisor.com/time-to-dust-off-the-savings-bond-interest-rate-crystal-ball/#comment-253 Sat, 01 Apr 2006 19:26:19 +0000 http://www.savings-bond-advisor.com/time-to-dust-off-the-savings-bond-interest-rate-crystal-ball/#comment-253 Mario - I can't find any data on TIPS yields before Jan 2003. Since then the only time the Treasury has set the I bond fixed rate above the 5-year TIPS yield was when the TIPS yield was under 1.0%. The Treasury's goal is to borrow money as inexpensively as it can, but how that plays out in terms of I bond fixed rates is just a guess. Gonzalo - The breakeven point for 10 years is a fixed rate of 1.3%. In other words, if the new I bond fixed rate is under 1.3%, you'll do better after 10 years with the I bond you can buy now. If it's over 1.3% you'll do better with a May I bond. The Treasury can set the I bond fixed rate whereever it wants. For issues from the I bond introduction in Sep 1998 through April 2003 the fixed rate was well above 1.3%; for the last three years it's been lower than that. Mario - I can't find any data on TIPS yields before Jan 2003. Since then the only time the Treasury has set the I bond fixed rate above the 5-year TIPS yield was when the TIPS yield was under 1.0%. The Treasury's goal is to borrow money as inexpensively as it can, but how that plays out in terms of I bond fixed rates is just a guess.

Gonzalo - The breakeven point for 10 years is a fixed rate of 1.3%. In other words, if the new I bond fixed rate is under 1.3%, you'll do better after 10 years with the I bond you can buy now. If it's over 1.3% you'll do better with a May I bond.

The Treasury can set the I bond fixed rate whereever it wants. For issues from the I bond introduction in Sep 1998 through April 2003 the fixed rate was well above 1.3%; for the last three years it's been lower than that.

]]> by: Gonzalo http://www.savings-bond-advisor.com/time-to-dust-off-the-savings-bond-interest-rate-crystal-ball/#comment-251 Sat, 01 Apr 2006 15:04:36 +0000 http://www.savings-bond-advisor.com/time-to-dust-off-the-savings-bond-interest-rate-crystal-ball/#comment-251 I'm looking to start investing in I Bonds. I'm planning on holding them for 10+ years. I heard that if I buy right now, I'll get 6.73% for the next 6 months, but then the fix rate will be only 1%... On the other hand, if I wait till May, I could get a better fix rate (probably 2+%), but a lousy total rate.... What would you recommend for the long term holder? Thanks!! I'm looking to start investing in I Bonds.
I'm planning on holding them for 10+ years.
I heard that if I buy right now, I'll get 6.73% for the next 6 months, but then the fix rate will be only 1%…
On the other hand, if I wait till May, I could get a better fix rate (probably 2+%), but a lousy total rate….

What would you recommend for the long term holder?

Thanks!!

]]> by: Mario http://www.savings-bond-advisor.com/time-to-dust-off-the-savings-bond-interest-rate-crystal-ball/#comment-246 Sat, 01 Apr 2006 03:27:57 +0000 http://www.savings-bond-advisor.com/time-to-dust-off-the-savings-bond-interest-rate-crystal-ball/#comment-246 Cool, let the predictions begin! This semiannual guessing game is always fun. I'm glad you didn't completely give up on the Treasury's sanity to give a meaningful fixed rate, Tom. As we get closer to May 1 you'll see news websites cite, "Tom Adams predicts 2.5% I bond rate." I think I've posted some values from my statistical forecast modeling previous. It looks like March was a pretty inflationary month (I base this on gas and grocery prices) so I'm predicting a 1% inflation component. I'll let myself be surprised by the fixed rate - hopefully positively - but around 2% sure would be nice. Do you think there's a chance that if the inflation rate is bad enough, they might set the fixed rate above 5 year TIPS yields? Cool, let the predictions begin! This semiannual guessing game is always fun. I'm glad you didn't completely give up on the Treasury's sanity to give a meaningful fixed rate, Tom.

As we get closer to May 1 you'll see news websites cite, "Tom Adams predicts 2.5% I bond rate."

I think I've posted some values from my statistical forecast modeling previous. It looks like March was a pretty inflationary month (I base this on gas and grocery prices) so I'm predicting a 1% inflation component. I'll let myself be surprised by the fixed rate - hopefully positively - but around 2% sure would be nice. Do you think there's a chance that if the inflation rate is bad enough, they might set the fixed rate above 5 year TIPS yields?

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