Guess the I-bond fixed rate

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
User avatar
Topic Author
hollowcave2
Posts: 1790
Joined: Thu Mar 01, 2007 3:22 pm
Location: Sacramento, CA

Guess the I-bond fixed rate

Post by hollowcave2 »

Well, I didn't see a thread yet on the new I-bond rate that will established this Friday, May 1.

There has been a lot of opinions voiced on the fixed rate and, of course, we really don't know what the Treasury will do. I am hoping that this confrontation with deflation over the past term will give us some insight into the decisions made by the Treasury.

Some have hoped that the fixed rate will be set very high to offset the negative variable component, but I don't find that very likely. A better prediction IMHO would be that they just set everything to zero percent because they can't do anything about this, so why pay anything?

But realistically, I think they'll just sit back and do nothing, waiting for the next term, leaving the fixed rate where it is, at 0.7%

Any other guesses?

Steve
User avatar
Opponent Process
Posts: 5157
Joined: Tue Sep 18, 2007 9:19 pm

Post by Opponent Process »

1.0%
30/30/20/20 | US/International/Bonds/TIPS | Average Age=37
PatrickS
Posts: 51
Joined: Sat Feb 24, 2007 6:38 pm
Location: San Diego

Post by PatrickS »

0.5%
Reasoning: none
Spirit Rider
Posts: 13626
Joined: Fri Mar 02, 2007 2:39 pm

Post by Spirit Rider »

PatrickS wrote:0.5%
Reasoning: none
I think that is as good a rate and the best reasoning.

Me I will agree and add as a resoning, that they have no incentive for a higher rate. They certainly are not going to lock themselves in to a high rate for thirty years just to make a postive net yield for the next six months.
User avatar
Lbill
Posts: 4997
Joined: Thu Mar 13, 2008 11:25 pm
Location: Somewhere between Up and Down

Post by Lbill »

I was on record for 0.5% fixed and 0% inflation component, but they might be feeling generous and do 0.5% on the inflation component as well, because they can take that away in six months. The 5-yr TIP just came in with a 1.25% coupon. Mel has pointed out there is no predictability from the TIP to the I-Bond. Different markets - the I-Bond is for the little schmucks like you and me, but I figure they have to toss us a bone. They'll be reluctant to do much on the inflation component because everyone with legacy I-Bonds is entitled to collect that for the next six months. To compensate they'll give only the buyers of new I-Bonds for the May-November window a little teaser on the fixed rate. They get stuck with that forever, even during deflation, but it's only for a small slice of I-Bond holders.
"Life can only be understood backward; but it must be lived forward." ~ Søren Kierkegaard | | "You can't connect the dots looking forward; but only by looking backwards." ~ Steve Jobs
User avatar
Mel Lindauer
Moderator
Posts: 31188
Joined: Mon Feb 19, 2007 8:49 pm
Location: Daytona Beach Shores, Florida
Contact:

Post by Mel Lindauer »

Lbill wrote:I was on record for 0.5% fixed and 0% inflation component, but they might be feeling generous and do 0.5% on the inflation component as well, because they can take that away in six months. The 5-yr TIP just came in with a 1.25% coupon. Mel has pointed out there is no predictability from the TIP to the I-Bond. Different markets - the I-Bond is for the little schmucks like you and me, but I figure they have to toss us a bone. They'll be reluctant to do much on the inflation component because everyone with legacy I-Bonds is entitled to collect that for the next six months. To compensate they'll give only the buyers of new I-Bonds for the May-November window a little teaser on the fixed rate. They get stuck with that forever, even during deflation, but it's only for a small slice of I-Bond holders.
Hi Lbill:

Sorry, but the Treasury doesn't set the inflation figure -- they simply report it. And we already know that it's negative.
Best Regards - Mel | | Semper Fi
User avatar
DiscoBunny1979
Posts: 2040
Joined: Sun Oct 21, 2007 10:59 am

Post by DiscoBunny1979 »

Lbill wrote:I was on record for 0.5% fixed and 0% inflation component, but they might be feeling generous and do 0.5% on the inflation component as well, because they can take that away in six months. The 5-yr TIP just came in with a 1.25% coupon. Mel has pointed out there is no predictability from the TIP to the I-Bond. Different markets - the I-Bond is for the little schmucks like you and me, but I figure they have to toss us a bone. They'll be reluctant to do much on the inflation component because everyone with legacy I-Bonds is entitled to collect that for the next six months. To compensate they'll give only the buyers of new I-Bonds for the May-November window a little teaser on the fixed rate. They get stuck with that forever, even during deflation, but it's only for a small slice of I-Bond holders.
---------------

It's not there's no predictability from the TIP to the I-Bond. .it's that the folks that set the fixed rate can use any matrix they want, or use no matrix at all - it's at their discretion. Therefore, it's quite pointless to try to determine what the fixed rate will be. It will be what they decide it to be and based probably on nothing at all. And I'm not even sure that they have incentivce to offer a teaser on the fixed rate - afterall, they already have the precident of 0% fixed rate already on the books.
manuvns
Posts: 805
Joined: Wed Jan 02, 2008 2:30 pm

Post by manuvns »

2%
arbogast777
Posts: 166
Joined: Fri Mar 02, 2007 11:33 am
Location: Minneapolis, MN

Post by arbogast777 »

1.0-1.50%
User avatar
Lbill
Posts: 4997
Joined: Thu Mar 13, 2008 11:25 pm
Location: Somewhere between Up and Down

Post by Lbill »

Sorry, but the Treasury doesn't set the inflation figure -- they simply report it. And we already know that it's negative
Mel - Yeh, I guess that's right isnt' it? So we only have one moving part - the fixed rate. We know the inflation component has to be 0?
"Life can only be understood backward; but it must be lived forward." ~ Søren Kierkegaard | | "You can't connect the dots looking forward; but only by looking backwards." ~ Steve Jobs
User avatar
Mel Lindauer
Moderator
Posts: 31188
Joined: Mon Feb 19, 2007 8:49 pm
Location: Daytona Beach Shores, Florida
Contact:

Post by Mel Lindauer »

manuvns wrote:2%
I suspect that there would be lots of long-term buyers if you're right.
Best Regards - Mel | | Semper Fi
User avatar
tfb
Posts: 8319
Joined: Mon Feb 19, 2007 5:46 pm
Contact:

Post by tfb »

0%. When TIPS yields were above 3% last October, they set it to 0.7%. They have to set it lower now. 0% would be generous based on what they did before.
Harry Sit, taking a break from the forums.
schwarm
Posts: 710
Joined: Sun Oct 28, 2007 1:17 pm
Location: Lower Alabama

Post by schwarm »

So what would be a good real return to buy more? (Realizing that it will be a different number for different people) I bought some last year for my "semi-emergency" fund when they were at 1.2%. At less than 1% I have not been enticed. Anybody looking from a minimum rate they will buy at?
User avatar
Topic Author
hollowcave2
Posts: 1790
Joined: Thu Mar 01, 2007 3:22 pm
Location: Sacramento, CA

my threshold

Post by hollowcave2 »

I'll still make occasional small purchases at the current rate (when I reinvest my TIPS interest, for example), but for new major purchases over $1K, my threshold is 1.0%.

When they set the fixed rate to zero last May, I didn't make any purchases at all until this month for a small amount.

I wonder if they'll push the EE bonds if they set the rate to zero again.
rdgamblr
Posts: 68
Joined: Sun Apr 27, 2008 5:59 pm

Post by rdgamblr »

I was looking for .9-1.1%

That said i am now thinking .5% or lower. So I planned 3000$ in paper purchase for the morning. Still have option for more long term if i am wrong, but i can't see how they could increase the fixed rate.
User avatar
Kevinaom
Posts: 187
Joined: Sun Mar 18, 2007 7:44 am
Location: Michigan
Contact:

Post by Kevinaom »

0% .. that is my prediction... why set it at anything else.. no matter what they set it at, the next 6 months will be 0% so we can call the next six months the "lost 1/2 year".

If they set it above .7% I am going to be ticked.. bought $15K of my $20K already in anticipation of 0.
tutaloo
Posts: 384
Joined: Sun Feb 22, 2009 2:45 pm

Post by tutaloo »

zz
Last edited by tutaloo on Tue Jan 18, 2011 5:16 am, edited 1 time in total.
knowmad
Posts: 466
Joined: Thu Feb 05, 2009 11:39 pm

Re: Guess the I-bond fixed rate

Post by knowmad »

.5%. The days of high real returns on i-bonds are over.
User avatar
VTSMX
Posts: 77
Joined: Wed Apr 02, 2008 10:08 am
Location: Gahanna, OH

Post by VTSMX »

I am guessing 1.4%. I don't think there's any reason they would give a fixed rate below the current 0.7%, at least if history is any indication.

They have to give people some reason to buy them, at least.
User avatar
Tall Grass
Posts: 1205
Joined: Mon Jul 07, 2008 8:11 pm
Location: Kansas

Post by Tall Grass »

I will guess .55%, and for inflation to rise 3.75% in the next twelve months
"A wise man should have money in his head, but not in his heart." - Jonathan Swift
User avatar
Sheepdog
Posts: 5650
Joined: Tue Feb 27, 2007 3:05 pm
Location: Midwest, retired 1998 at age 65

Post by Sheepdog »

I say 5%.....And they will increase the limit to $50,000 per SS number....and they will allow credit card purchases which I will use my reward cards like I did back in 2000 - 2003

Don't I wish!

________________________

Okay, my guess is that there will be no change of the fixed.

Jim
Time is the school in which we learn, time is the fire in which we burn.~ Delmore Schwartz
User avatar
Lbill
Posts: 4997
Joined: Thu Mar 13, 2008 11:25 pm
Location: Somewhere between Up and Down

Post by Lbill »

If they set it above .7% I am going to be ticked.. bought $15K of my $20K already in anticipation of 0
Hey, I thought an individual could only purchase $10K (5 paper, 5 TD). Are you talking about 2 people?
"Life can only be understood backward; but it must be lived forward." ~ Søren Kierkegaard | | "You can't connect the dots looking forward; but only by looking backwards." ~ Steve Jobs
User avatar
joe8d
Posts: 4446
Joined: Tue Feb 20, 2007 8:27 pm
Location: Buffalo,NY

Post by joe8d »

Mel has pointed out there is no predictability from the TIP to the I-Bond. Different markets - the I-Bond is for the little schmucks like you and me, but I figure they have to toss us a bone.
I agree and in that vain would suggest that they simply change the I-Bond structure to pay out only the Inflation rate component,no fixed rate,and in return all earnings would be tax free if the I-bond is held 5 years or more.It would be a "Roth type" approach and since your purchase amounts are limited anyway,it would be geared toward benefiting the little guy.
Who knows,with this new administration,they may be more open to something like that.
All the Best, | Joe
eurowizard
Posts: 1005
Joined: Sat May 10, 2008 10:26 am

Post by eurowizard »

I think they will keep the rate the same or possibly lower it.

After all, its going to be 0% regardless of what the fixed rate is, and if they lower the base rate, to say 0.2% then in November if they raise it 0.5% it makes it look like a good deal according to the contrast principle.
xerty24
Posts: 4827
Joined: Tue May 15, 2007 3:43 pm

Post by xerty24 »

Anyone who suggests it'll be higher than about 1.5% is being a pretty big optimist. Anyone who thinks they'll increase the purchase limits and/or otherwise improve the bond terms too is just crazy.
bhmlurker
Posts: 305
Joined: Mon Apr 14, 2008 11:16 pm

Post by bhmlurker »

The fixed component won't be higher than 1% if even that. Federal gov't wants people to invest and failing that, spend. Saving money is the last thing on their agenda.
arbogast777
Posts: 166
Joined: Fri Mar 02, 2007 11:33 am
Location: Minneapolis, MN

Post by arbogast777 »

bhmlurker wrote:The fixed component won't be higher than 1% if even that. Federal gov't wants people to invest and failing that, spend. Saving money is the last thing on their agenda.
Very true. But on the other hand you can also say that the gov't with all of its spending needs to raise money. And while the Savings Bonds program probably doesn't raise but a drop in the bucket, whoever is in charge of it probably has some minimum that he has to take in and you're not going to get that with a 0% fixed rate.

That's why I voted for a modest 1.0-1.50%.
detifoss
Posts: 554
Joined: Sat Oct 13, 2007 10:38 pm

Post by detifoss »

if they could make it negative, they would

since they can't, it will be 0%, or failing that, some trivial percentage less than 0.2%.

I-bonds are really a bad way for the government to raise funds (too much overhead for too little funding), and due to their deflation floor and inflation protection, offer little in the way advantages to the Treasury.

I suspect they would be quite happy if they never sold another I bond.

If I'm wrong and it's any higher than 1.2% I'll dump mine and buy the new ones. It isn't happening but I can dream.
User avatar
tetractys
Posts: 4836
Joined: Sat Mar 17, 2007 3:30 pm
Location: Along the Salish Sea

Post by tetractys »

DiscoBunny1979 wrote:it's that the folks that set the fixed rate can use any matrix they want, or use no matrix at all - it's at their discretion. Therefore, it's quite pointless to try to determine what the fixed rate will be. It will be what they decide it to be and based probably on nothing at all.
We don't even know this much. We don't know if the Treasury can use any matrix they want, or if they are free to not use a matrix.

My guess is that the next fixed rate will be something we can learn from. -- Tet
RESISTANCE IS FRUITFUL
User avatar
DiscoBunny1979
Posts: 2040
Joined: Sun Oct 21, 2007 10:59 am

Post by DiscoBunny1979 »

bhmlurker wrote:The fixed component won't be higher than 1% if even that. Federal gov't wants people to invest and failing that, spend. Saving money is the last thing on their agenda.
---------

I disagree. I-Bonds were invented as an alternative to EE Savings Bonds. I-Bonds are savings vehicles and they never were intended as "investments". That's why the max purchases were lowered. . . . to make them for savings for the little guy, not for folks that can purchase in bulk.
User avatar
DiscoBunny1979
Posts: 2040
Joined: Sun Oct 21, 2007 10:59 am

Post by DiscoBunny1979 »

tetractys wrote:
DiscoBunny1979 wrote:it's that the folks that set the fixed rate can use any matrix they want, or use no matrix at all - it's at their discretion. Therefore, it's quite pointless to try to determine what the fixed rate will be. It will be what they decide it to be and based probably on nothing at all.
We don't even know this much. We don't know if the Treasury can use any matrix they want, or if they are free to not use a matrix.

My guess is that the next fixed rate will be something we can learn from. -- Tet
--------

I know this as I phoned the Treasury and asked them point blank questions. My questions and their answers are on tape somewhere. And that's exactly what the folks at the Treasury said and echoed that to me in an email. But even if a matrix is used, it's not available to the public. Therefore, it's like everything else the Government does - it's one big secret with reasoning only known to them and for any reason they choose.
Post Reply