Holding off 2013 I-Bond Purchase

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Holding off 2013 I-Bond Purchase

Postby runner26 » Wed Jan 16, 2013 9:22 pm

Three months into this I-Bond period, CPI-U for Sept was 231.407 and for Dec was 229.601 (third month in a row with lower cpi-u), thus a trend of deflation. Without a reversal, the next inflation reset for current bonds would be zero.

If the deflation trend remains, May bonds may be issued at a base rate higher than zero. I don't think they have ever issued a zero/zero bond. I will wait until late April for a decision on my 2012 10K purchase.
Last edited by runner26 on Wed Jan 16, 2013 10:33 pm, edited 1 time in total.
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Re: Holding off 2012 I-Bond Purchase

Postby sscritic » Wed Jan 16, 2013 9:25 pm

runner26 wrote:If the deflation trend remains, May bonds may be issued at a base rate higher than zero. I don't think they have ever issued a zero/zero bond. I will wait until late April for a decision on my 2012 10K purchase.

Is that April of 2012 or April of 2013?

The limit on acquisition is by calendar year.
The principal amount of book-entry savings bonds that you may acquire in any calendar year is limited to $10,000 for Series EE savings bonds and $10,000 for Series I savings bonds.
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Re: Holding off 2012 I-Bond Purchase

Postby runner26 » Wed Jan 16, 2013 9:28 pm

sscritic wrote:
runner26 wrote:If the deflation trend remains, May bonds may be issued at a base rate higher than zero. I don't think they have ever issued a zero/zero bond. I will wait until late April for a decision on my 2012 10K purchase.

Is that April of 2012 or April of 2013?


oops, I will wait until late April for a decision on my 2013 10K purchase.
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Re: Holding off 2012 I-Bond Purchase

Postby tfb » Wed Jan 16, 2013 9:33 pm

runner26 wrote:I will wait until late April for a decision on my 2013 10K purchase.

Suppose it's still negative/zero by then and the TIPS yields remain the same as today. What would that decision be? Wait until May? What if the fixed rate in May is indeed 0%? Wait until October? What if it's still low at that time? Do you skip the $10k for 2013?
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Re: Holding off 2012 I-Bond Purchase

Postby runner26 » Wed Jan 16, 2013 9:42 pm

tfb wrote:
runner26 wrote:I will wait until late April for a decision on my 2013 10K purchase.

Suppose it's still negative/zero by then and the TIPS yields remain the same as today. What would that decision be? Wait until May? What if the fixed rate in May is indeed 0%? Wait until October? What if it's still low at that time? Do you skip the $10k for 2013?


In April, I will know the variable reset for current bonds, and the variable for new May bonds. If that is zero, and the May fixed rate comes in at zero, then yes, I will have no interest in this investment for 2013. Others may see it differently, but I have a lot of I-Bonds from higher base rate days, so feel less compelled to go after these.
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Re: Holding off 2012 I-Bond Purchase

Postby sscritic » Wed Jan 16, 2013 9:56 pm

runner26 wrote:In April, I will know the variable reset for current bonds, and the variable for new May bonds. If that is zero, and the May fixed rate comes in at zero, then yes, I will have no interest in this investment for 2013. Others may see it differently, but I have a lot of I-Bonds from higher base rate days, so feel less compelled to go after these.

November 2013 is still part of 2013, as is December 2013.
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Re: Holding off 2012 I-Bond Purchase

Postby Svensk Anga » Wed Jan 16, 2013 10:03 pm

It is common to have deflation, or at least milder inflation, in October, November, and December. The worst inflation of the year is January, February, March and April. For the last nine years, by month:

1 0.440%
2 0.437%
3 0.655%
4 0.451%
5 0.311%
6 0.259%
7 0.127%
8 0.153%
9 0.184%
10 -0.054%
11 -0.246%
12 -0.230%

My guess is that the CPI will rebound over the coming months and wind up with a small positive inflation adjustment for the I-bonds in the next announcement. The variability through the year is why the government announces a "seasonally adjusted" inflation figure.
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Re: Holding off 2012 I-Bond Purchase

Postby crowd79 » Wed Jan 16, 2013 10:25 pm

If the next I-Bond rate is indeed 0.00%, it is probably worth it to sell your current bond holdings and take a 3 month penalty and park it in a savings account for a few months.
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Re: Holding off 2012 I-Bond Purchase

Postby JimInIllinois » Thu Jan 17, 2013 12:30 am

crowd79 wrote:If the next I-Bond rate is indeed 0.00%, it is probably worth it to sell your current bond holdings and take a 3 month penalty and park it in a savings account for a few months.


Unless your current I-bond holdings plus your planned purchases exceed $10,000.
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Re: Holding off 2013 I-Bond Purchase

Postby robj » Thu Jan 17, 2013 7:15 am

Instead of deferring your I Bond buying until the inflation portion is >0, is there a school of thought that would say go ahead and buy in full now so that you can get your "holding period" started. Since one can't sell newly purchased I Bonds for a year, I would want that year to begin as soon as possible. My strategy will be to sell my lower legacy "fixed rate" bonds at the time fixed rates have finally risen and then re-purchase those higher fixed rate bonds guaranteeing higher rates throughout the future. What am I missing with this plan, if anything?
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Re: Holding off 2013 I-Bond Purchase

Postby schnoodlemom » Thu Jan 17, 2013 7:43 am

My total inexperience with I-bonds is showing here, but I need to ask: if you have an ISP that says you're going to invest $10k into I-bonds every year until you retire, but during a period of higher inflation you also sell older I-bonds to repurchase those with higher rates, have you not reduced the total amount of new money you can invest that year? If so, where do you put the new money? Maybe it's not an issue, but I often have trouble seeing the bigger picture, so am trying to understand. Thanks in advance.
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Re: Holding off 2013 I-Bond Purchase

Postby bigspender » Thu Jan 17, 2013 8:12 am

schnoodlemom wrote:My total inexperience with I-bonds is showing here, but I need to ask: if you have an ISP that says you're going to invest $10k into I-bonds every year until you retire, but during a period of higher inflation you also sell older I-bonds to repurchase those with higher rates, have you not reduced the total amount of new money you can invest that year? If so, where do you put the new money? Maybe it's not an issue, but I often have trouble seeing the bigger picture, so am trying to understand. Thanks in advance.


Yeah, your actually right. If you sell your 10k 2012 i bond allocation, you can never buy it back.
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Re: Holding off 2013 I-Bond Purchase

Postby robj » Thu Jan 17, 2013 12:42 pm

Absolutely you are right that selling legacy 0% fixed I bonds and re-buying when they are better will use up your allottment for the year. However, I am all-in on my I Bonds, but it will be about 4 or 5 years before I wish to draw any cash off of them. I just want to have my total ibond amount in the best position when I do start to draw so exchanging some "zeros" for some hoped-for in the future 1.5%'s will help me with my draw. Sorry I didn't mean to imply that selling/rebuying strategy in any way gave you more purchasing power. (Wife and I do have individual accounts as well as individual Trust accounts at Treasury Direct so we maintain a $40,000 per year ibond limit together, which will help the conversions to higher fixed rate bonds--if we can ever get a little inflation back into the economy).
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Re: Holding off 2013 I-Bond Purchase

Postby camaro327 » Thu Jan 17, 2013 12:59 pm

runner26 wrote: I don't think they have ever issued a zero/zero bond. I will wait until late April for a decision on my 2012 10K purchase.


They issued a 0% composite bond from May 1st, 2009 thru October 31st, 2009. I doubt there were a lot of takers. Maybe some of the people that have periodic purchases set up.
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Re: Holding off 2013 I-Bond Purchase

Postby 555 » Thu Jan 17, 2013 1:31 pm

camaro327 wrote:
runner26 wrote:"I don't think they have ever issued a zero/zero bond. I will wait until late April for a decision on my 2012 10K purchase."


"They issued a 0% composite bond from May 1st, 2009 thru October 31st, 2009. I doubt there were a lot of takers. Maybe some of the people that have periodic purchases set up."


Not acording to this
http://www.treasurydirect.gov/indiv/res ... dterms.htm
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Re: Holding off 2013 I-Bond Purchase

Postby runner26 » Thu Jan 17, 2013 3:28 pm

555 wrote:
camaro327 wrote:
runner26 wrote:"I don't think they have ever issued a zero/zero bond. I will wait until late April for a decision on my 2012 10K purchase."


"They issued a 0% composite bond from May 1st, 2009 thru October 31st, 2009. I doubt there were a lot of takers. Maybe some of the people that have periodic purchases set up."


Not acording to this
http://www.treasurydirect.gov/indiv/res ... dterms.htm


Actually, I think camaro327 is correct. May 1st, the 6 mo. inflation rate was -2.78% and the new bonds were issued at a base rate of .10%. The inflation rate can drag down the base rate when determining the composite rate, but not below zero. So the .10 base rate bonds would have had a composite yield zero for the first 6 months. Even though the bond was not zero/zero, it's first 6 months were an unappealing zero. Would have to run some calculations to see if that is better or worse than the zero base rates being issued since Nov 2010.
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Re: Holding off 2013 I-Bond Purchase

Postby 555 » Thu Jan 17, 2013 3:39 pm

runner26 wrote:
555 wrote:
camaro327 wrote:
runner26 wrote:"I don't think they have ever issued a zero/zero bond. I will wait until late April for a decision on my 2012 10K purchase."


"They issued a 0% composite bond from May 1st, 2009 thru October 31st, 2009. I doubt there were a lot of takers. Maybe some of the people that have periodic purchases set up."


Not acording to this
http://www.treasurydirect.gov/indiv/res ... dterms.htm


Actually, I think camaro327 is correct. May 1st, the 6 mo. inflation rate was -2.78% and the new bonds were issued at a base rate of .10%. The inflation rate can drag down the base rate when determining the composite rate, but not below zero. So the .10 base rate bonds would have had a composite yield zero for the first 6 months. Even though the bond was not zero/zero, it's first 6 months were an unappealing zero. Would have to run some calculations to see if that is better or worse than the zero base rates being issued since Nov 2010.


I stand corrected.
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Re: Holding off 2013 I-Bond Purchase

Postby camaro327 » Thu Jan 17, 2013 3:54 pm

It did have that fixed rate of 0.10%. So if you waited down the road you got this bonus. As 555 pointed out on the TD charts there was a strong negative CPI component for those six months. I wonder what the treasury would set the fixed rate at if it's only slightly negative.

I guess there's always the buy half now and half later approach.
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Re: Holding off 2012 I-Bond Purchase

Postby #Cruncher » Thu Jan 17, 2013 6:49 pm

Svensk Anga wrote:It is common to have deflation, or at least milder inflation, in October, November, and December. The worst inflation of the year is January, February, March and April. For the last nine years, by month: ...
Svensk, for comparison I computed the monthly averages for the past 9 years, 2004 - 2012. The averages differ somewhat from yours; but confirm your overall conclusion. Here is the % Change from previous month in not-seasonally adjusted CPI-U January 2004 - Dec 2012 as I computed it from CPI-U Since 1913:
Code: Select all
       Jan    Feb    Mar    Apr    May    Jun    Jul    Aug    Sep    Oct    Nov    Dec
      -----  -----  -----  -----  -----  -----  -----  -----  -----  -----  -----  -----
2004  0.488  0.540  0.644  0.320  0.585  0.317 -0.158  0.053  0.211  0.527  0.052 -0.366
2005  0.210  0.577  0.782  0.673 -0.103  0.051  0.463  0.512  1.222  0.201 -0.803 -0.405
2006  0.762  0.202  0.554  0.851  0.496  0.198  0.296  0.197 -0.490 -0.542 -0.149  0.149
2007  0.305  0.535  0.911  0.650  0.611  0.194 -0.025 -0.183  0.276  0.214  0.594 -0.067
2008  0.497  0.290  0.867  0.606  0.842  1.008  0.525 -0.399 -0.138 -1.010 -1.915 -1.034
2009  0.435  0.497  0.243  0.250  0.289  0.859 -0.159  0.224  0.063  0.096  0.071 -0.176
2010  0.342  0.025  0.411  0.174  0.078 -0.098  0.021  0.138  0.058  0.125  0.042  0.172
2011  0.476  0.493  0.975  0.644  0.470 -0.107  0.089  0.276  0.152 -0.206 -0.084 -0.247
2012  0.440  0.440  0.759  0.302 -0.117 -0.147 -0.163  0.557  0.446 -0.039 -0.474 -0.269
      -----  -----  -----  -----  -----  -----  -----  -----  -----  -----  -----  -----
Avg   0.440  0.400  0.683  0.497  0.350  0.253  0.099  0.153  0.200 -0.071 -0.296 -0.249
Many people forget that the CPI used for adjusting TIPS and I Bonds is not seasonally adjusted; and therefore not suitable for simple extrapolation from non-annual periods. Of course one can't assume that only seasonality accounts for the difference in the month-to-month average changes over the last nine years. If one seriously wishes to forecast future CPI changes based on changes in recent months, one should make use of something like the CONSUMER PRICE INDEX -- REVISED SEASONAL FACTORS AND SEASONALLY ADJUSTED INDEXES, JANUARY 2007-DECEMBER 2011 provided by the Bureau of Labor Statistics. I made a clumsy attempt to do so several months ago in the post, Re: Positive real yield on 2013 TIPS, when trying to estimate what the CPI adjustment to TIPS would be on 4/15/2013.

schnoodlemom wrote:you also sell older I-bonds to repurchase those with higher rates, have you not reduced the total amount of new money you can invest that year? If so, where do you put the new money?
Why not TIPS? When the I Bond fixed rate rises above 0%, the rate on 10-year TIPS will probably be about 1% point higher. See my post Re: TIPS Real Yield vs I Bond Fixed Rate 1999 - 2011 for the relationship between I Bond and TIPS rates before the I Bond fixed rate fell to 0%.

robj wrote:when I do start to draw so exchanging some "zeros" for some hoped-for in the future 1.5%'s ... Sorry I didn't mean to imply that selling/rebuying strategy in any way gave you more purchasing power.
But Rob, you would increase the value of your holdings. This is one of the big advantages of I Bonds over TIPS. If TIPS rates go up, I do indeed gain nothing by selling an old one with a small coupon and buying a new higher coupon one with the same remaining maturity. This is because the market will drive down the price of the small coupon bond so its yield matches that of the one with the higher coupon. But because their value can't go down, you can pull this off with I Bonds.
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Re: Holding off 2013 I-Bond Purchase

Postby JimInIllinois » Fri Jan 18, 2013 1:41 am

I just scheduled my I-bond purchase for January 30. Six months at 1.76% is close to a year in a savings account, so it's a draw if the next inflation component is zero and a win otherwise.
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Re: Holding off 2013 I-Bond Purchase

Postby DickBenson » Fri Jan 18, 2013 3:44 am

JimInIllinois wrote:I just scheduled my I-bond purchase for January 30. Six months at 1.76% is close to a year in a savings account, so it's a draw if the next inflation component is zero and a win otherwise.


And you have a guaranteed minimum 1 year rate of 0.88%. If you redeem the bond after one year, you would lose the interest earned during the last 3 months, but if the next inflation component is zero, this 3 month penalty for early withdrawal would be zero.

(Actually your return would be a little greater than 0.88% (~1%) since, if you purchase at the end of this month, your money would be invested for only 11 months)

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Re: Holding off 2013 I-Bond Purchase

Postby sscritic » Fri Jan 18, 2013 7:27 am

DickBenson wrote: If you redeem the bond after one year,
...
if you purchase at the end of this month, your money would be invested for only 11 months

My definition of a year is different than yours. If I buy a bond on January 30 and redeem it a year later on January 30, my money has been invested for 12 months.

P.S. Your holding period depends both on the starting date and the ending date. You explicitly defined one, but not the other. :)
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Re: Holding off 2013 I-Bond Purchase

Postby camaro327 » Fri Jan 18, 2013 7:56 am

So I think sscritic is saying you need a specific example. For example a purchase is made on 1/30/XX and redeemed on 1/2/(XX+1). It's always a few days over 11 months. Although a few days interest is irrelevant.
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Re: Holding off 2013 I-Bond Purchase

Postby Norris » Fri Jan 18, 2013 8:16 am

JimInIllinois wrote:I just scheduled my I-bond purchase for January 30. Six months at 1.76% is close to a year in a savings account, so it's a draw if the next inflation component is zero and a win otherwise.


Me too. I'm moving $10,000 from Ally @.95% taxable to TD @.88% tax deferred and maybe tax free.
I also printed out a copy of purchase confirmation and current holdings summary.

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Re: Holding off 2013 I-Bond Purchase

Postby schnoodlemom » Fri Jan 18, 2013 8:26 am

Another I-bond newbie question, my apologies if this is the wrong place for it:

Does anyone purposefully purchase in less than $10k increments, even though the total purchase is $10k on a single date? I would like to keep things as simple as possible regarding record-keeping, but have the potential to only redeem smaller increments at a time if I use this as an emergency fund/retirement acct. I'm stuck on what would be the optimal denominations, $2K vs. $5k for example. TIA.
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Re: Holding off 2013 I-Bond Purchase

Postby sscritic » Fri Jan 18, 2013 8:32 am

schnoodlemom wrote:Another I-bond newbie question, my apologies if this is the wrong place for it:

Does anyone purposefully purchase in less than $10k increments, even though the total purchase is $10k on a single date? I would like to keep things as simple as possible regarding record-keeping, but have the potential to only redeem smaller increments at a time if I use this as an emergency fund/retirement acct. I'm stuck on what would be the optimal denominations, $2K vs. $5k for example. TIA.

A redemption can be for as little as $25 as long as you leave $25 in the bond. If you need $1000 from a $10,000 bond, take it. Note that part of your $1000 will be a return of principal and the rest interest, taken proportionately from the redemption value of your bond at the time.
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Re: Holding off 2013 I-Bond Purchase

Postby schnoodlemom » Fri Jan 18, 2013 8:52 am

Thanks sscritic, it's obvious I need to do more reading. I was thinking of them like CD's or paper savings bonds.
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Re: Holding off 2013 I-Bond Purchase

Postby jeffyscott » Sat Jan 19, 2013 1:50 pm

JimInIllinois wrote:I just scheduled my I-bond purchase for January 30. Six months at 1.76% is close to a year in a savings account, so it's a draw if the next inflation component is zero and a win otherwise.


I think it would be a "lose" if the next fixed rate is greater than 0.
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Re: Holding off 2013 I-Bond Purchase

Postby JimInIllinois » Sat Jan 19, 2013 2:35 pm

jeffyscott wrote:I think it would be a "lose" if the next fixed rate is greater than 0.


Good point, but that would require a 1% increase in real long-term interest rates before November to happen.
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Re: Holding off 2013 I-Bond Purchase

Postby amfox1 » Sat Mar 16, 2013 12:38 pm

runner26 wrote:Three months into this I-Bond period, CPI-U for Sept was 231.407 and for Dec was 229.601 (third month in a row with lower cpi-u), thus a trend of deflation. Without a reversal, the next inflation reset for current bonds would be zero.

If the deflation trend remains, May bonds may be issued at a base rate higher than zero. I don't think they have ever issued a zero/zero bond. I will wait until late April for a decision on my 2012 10K purchase.


Two months later, February CPI-U is now at 232.166. If March CPI-U remains the same, the next I-bond period would have a 0.33% annualized rate.
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Re: Holding off 2013 I-Bond Purchase

Postby crowd79 » Sat Mar 16, 2013 1:07 pm

amfox1 wrote:
runner26 wrote:Three months into this I-Bond period, CPI-U for Sept was 231.407 and for Dec was 229.601 (third month in a row with lower cpi-u), thus a trend of deflation. Without a reversal, the next inflation reset for current bonds would be zero.

If the deflation trend remains, May bonds may be issued at a base rate higher than zero. I don't think they have ever issued a zero/zero bond. I will wait until late April for a decision on my 2012 10K purchase.


Two months later, February CPI-U is now at 232.166. If March CPI-U remains the same, the next I-bond period would have a 0.33% annualized rate.


No, if it remains the same (doubtful to begin with), it will be 0.66% for 6 months. Thus, the combined rate would be 1.76% + 0.66% = 1.21% for the year, if it stays the same. Still would be a good deal IMO, & still better than a 1 yr CD.
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Re: Holding off 2013 I-Bond Purchase

Postby mtwoy » Thu Mar 21, 2013 9:37 pm

Trying to decide if I should go ahead and purchase I-Bonds at the end of this month to start the clock or wait until the next month. Any point now in waiting?
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