WashPo: Inflation-linked U.S. bonds crashed the TreasuryDirect website

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Ben Ploni
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WashPo: Inflation-linked U.S. bonds crashed the TreasuryDirect website

Post by Ben Ploni »

https://www.washingtonpost.com/business ... ite-crash/

Inflation-linked U.S. bonds crashed the TreasuryDirect website
Americans searching for a respite from inflation flooded the antiquated site trying to buy Series I savings bonds

People searching for a respite from inflation have flooded the Treasury Department phone lines and website to try to buy Series I savings bonds, causing much longer waits than usual. It’s the latest example of outdated government computer systems causing anguish for Americans.

[Content in excess of copyright fair use removed by admin LadyGeek]
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Re: WashPo: Inflation-linked U.S. bonds crashed the TreasuryDirect website

Post by JoMoney »

Thanks for the story link, I expect you've copied more than the allowable text of the article though...
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Re: WashPo: Inflation-linked U.S. bonds crashed the TreasuryDirect website

Post by Ben Ploni »

My mistake, I didn't know. I'm sorry, and it won't happen again.
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Re: WashPo: Inflation-linked U.S. bonds crashed the TreasuryDirect website

Post by Tamalak »

Glad I didn't go for this. I-bonds have had a shining year, but their historical performance is nothing special compared to other kinds of bonds. Keep it simple!
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Re: WashPo: Inflation-linked U.S. bonds crashed the TreasuryDirect website

Post by Mel Lindauer »

Tamalak wrote: Fri May 20, 2022 11:34 am Glad I didn't go for this. I-bonds have had a shining year, but their historical performance is nothing special compared to other kinds of bonds. Keep it simple!
You seem to be overlooking the fact that the early I Bonds paid (and continue to pay) from 3.0% to 3.6% PLUS inflation. That was definitely special when compared to other kinds of risk-free bonds that didn't even keep up with inflation. And the I Bonds were and are tax-deferred as well as free from state and local taxation. So they were (and still are) something special.
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Re: WashPo: Inflation-linked U.S. bonds crashed the TreasuryDirect website

Post by nisiprius »

Tamalak wrote: Fri May 20, 2022 11:34 am Glad I didn't go for this. I-bonds have had a shining year, but their historical performance is nothing special compared to other kinds of bonds. Keep it simple!
Series I savings bonds have no interest rate risk. Every kind of marketable bond has interest rate risk. That makes I bonds very special.
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Re: WashPo: Inflation-linked U.S. bonds crashed the TreasuryDirect website

Post by #Cruncher »

Mel Lindauer wrote: Fri May 20, 2022 2:39 pm
Tamalak wrote: Fri May 20, 2022 11:34 am... I-bonds have had a shining year, but their historical performance is nothing special compared to other kinds of bonds. ...
You seem to be overlooking the fact that the early I Bonds paid (and continue to pay) from 3.0% to 3.6% PLUS inflation. That was definitely special when compared to other kinds of risk-free bonds that didn't even keep up with inflation. ...
Tamalak is right, Mel. While the 3.0% to 3.6% I Bonds certainly do have advantages over "other kinds of bonds", their "historical performance" isn't one of them, but is instead "nothing special". First let's compare them to TIPS. There were eleven auctions of 10 and 30-year TIPS during the time I Bonds had these high fixed rates. In all eleven cases the TIPS yield was more than the fixed rate of an I Bond bought the month of the auction.

Code: Select all

----------------  T I P S  ---------------  I Bond  TIPS v
Coupon  Term   Matures    Auction    Yield   Rate   I Bond
3.625%    10  1/15/2008 10/07/1998  3.651%  3.400%  0.251%
3.875%    10  1/15/2009  1/06/1999  3.898%  3.300%  0.598%
3.875%    30  4/15/2029  4/07/1999  3.899%  3.300%  0.599%
3.875%    10  1/15/2009  7/07/1999  4.040%  3.300%  0.740%
3.875%    30  4/15/2029 10/06/1999  4.138%  3.300%  0.838%
4.250%    10  1/15/2010  1/12/2000  4.338%  3.400%  0.938%
4.250%    10  1/15/2010  7/12/2000  4.030%  3.600%  0.430%
3.875%    30  4/15/2029 10/11/2000  3.953%  3.600%  0.353%
3.500%    10  1/15/2011  1/10/2001  3.522%  3.400%  0.122%
3.500%    10  1/15/2011  7/11/2001  3.500%  3.000%  0.500%
3.375%    30  4/15/2032 10/10/2001  3.465%  3.000%  0.465%
Now lets compare them to regular non-inflation-indexed Treasuries. There were seven auctions of 30-year Treasury bonds from September 1998 (when I Bonds were first issued) through the end of 2001. The table below calculates the return of these bonds assuming they were sold on Friday. It then compares that return to the nominal return of I Bonds bought the month of the auction and redeemed this month. In the first two of the seven cases the returns were almost identical. But in the other five cases the return of the regular Treasury bonds was from 0.27% to 1.14% points higher than the I Bond's return.

Code: Select all

Row                 Col A       Col B      Col C      Col D      Col E      Col F      Col G      Col H  Formula in Column B copied to Column H
  1            Settlement   5/23/2022
  2       Treasury coupon      5.250%     5.250%     6.125%     6.250%     6.250%     5.375%     5.375%
  3               Matures  11/15/2028  2/15/2029  8/15/2029  5/15/2030  5/15/2030  2/15/2031  2/15/2031
  4                Issued  11/16/1998  2/16/1999  8/16/1999  2/15/2000  8/15/2000  2/15/2001  8/15/2001
  5         Auction price    99.25300   99.28200   99.74100   98.77100  107.86000   98.75300   97.90000
  6      Bid price Friday   114.31250  114.86250  121.82500  124.79375  124.79375  120.00625  120.00625
  7       Treasury return       5.61%      5.62%      6.57%      6.85%      6.15%      5.96%      6.05%  =YIELD(B4,$B1,B2,B5,B6,2,1)
  8     I Bond fixed rate       3.30%      3.30%      3.30%      3.40%      3.60%      3.40%      3.00%
  9  $100 I Bond grows to      369.76     360.36     351.40     349.84     352.60     326.28     291.76
 10   Nbr 6-month periods        47.0       46.5       45.5       44.5       43.5       42.5       41.5  =2*(YEAR($B1)-YEAR(B4))+(MONTH($B1)-MONTH(B4))/6
 11         I Bond return       5.64%      5.59%      5.60%      5.71%      5.88%      5.64%      5.23%  =2*((B9/100)^(1/B10)-1)
 12  Treas better/(worse)      (0.03%)     0.03%      0.97%      1.14%      0.27%      0.31%      0.82%  =B7-B11
nisiprius wrote: Fri May 20, 2022 4:10 pmSeries I savings bonds have no interest rate risk. Every kind of marketable bond has interest rate risk. That makes I bonds very special.
The table above shows that I Bonds lack of interest rate risk is a two-edged sword. It protects them if interest rates rise. But it hurts them if interest rates fall. The regular Treasury bonds are all priced above par because interest rates are now lower. But the price of the I Bonds does not benefit from real rates now being lower than the 3.0% to 3.6% when they were issued.

Sources:
Last edited by #Cruncher on Sat May 21, 2022 10:22 pm, edited 2 times in total.
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Re: WashPo: Inflation-linked U.S. bonds crashed the TreasuryDirect website

Post by anon_investor »

#Cruncher wrote: Sat May 21, 2022 5:01 pm
Mel Lindauer wrote: Fri May 20, 2022 2:39 pm
Tamalak wrote: Fri May 20, 2022 11:34 am... I-bonds have had a shining year, but their historical performance is nothing special compared to other kinds of bonds. ...
You seem to be overlooking the fact that the early I Bonds paid (and continue to pay) from 3.0% to 3.6% PLUS inflation. That was definitely special when compared to other kinds of risk-free bonds that didn't even keep up with inflation. ...
Tamalak is right, Mel. While the 3.0% to 3.6% I Bonds certainly do have advantages over "other kinds of bonds", their "historical performance" isn't one of them, but is instead "nothing special". First let's compare them to TIPS. There were eleven auctions of 10 and 30-year TIPS during the time I Bonds had these high fixed rates. In all eleven cases the TIPS yield was more than the fixed rate of an I Bond bought the month of the auction.

Code: Select all

----------------  T I P S  ---------------  I Bond  TIPS v
Coupon  Term   Matures    Auction    Yield   Rate   I Bond
3.625%    10  1/15/2008 10/07/1998  3.651%  3.400%  0.251%
3.875%    10  1/15/2009  1/06/1999  3.898%  3.300%  0.598%
3.875%    30  4/15/2029  4/07/1999  3.899%  3.300%  0.599%
3.875%    10  1/15/2009  7/07/1999  4.040%  3.300%  0.740%
3.875%    30  4/15/2029 10/06/1999  4.138%  3.300%  0.838%
4.250%    10  1/15/2010  1/12/2000  4.338%  3.400%  0.938%
4.250%    10  1/15/2010  7/12/2000  4.030%  3.600%  0.430%
3.875%    30  4/15/2029 10/11/2000  3.953%  3.600%  0.353%
3.500%    10  1/15/2011  1/10/2001  3.522%  3.400%  0.122%
3.500%    10  1/15/2011  7/11/2001  3.500%  3.000%  0.500%
3.375%    30  4/15/2032 10/10/2001  3.465%  3.000%  0.465%
Now lets compare them to regular non-inflation-indexed Treasuries. There were seven auctions of 30-year Treasury bonds from September 1998 (when I Bonds were first issued) through the end of 2001. The table below calculates the return of these bonds assuming they were sold on Friday. It then compares that return to the nominal return of I Bonds bought the month of the auction and redeemed this month. In the first two of the seven cases the returns were almost identical. But in the other five cases the return of the regular Treasury bonds was from 0.27% to 1.14% points higher than the I Bond's return.

Code: Select all

Row                 Col A       Col B      Col C      Col D      Col E      Col F      Col G      Col H  Formula in Column B copied to Column H
  1            Settlement   5/23/2022
  2       Treasury coupon      5.250%     5.250%     6.125%     6.250%     6.250%     5.375%     5.375%
  3               Matures  11/15/2028  2/15/2029  8/15/2029  5/15/2030  5/15/2030  2/15/2031  2/15/2031
  4                Issued  11/16/1998  2/16/1999  8/16/1999  2/15/2000  8/15/2000  2/15/2001  8/15/2001
  5         Auction price    99.25300   99.28200   99.74100   98.77100  107.86000   98.75300   97.90000
  6      Bid price Friday   114.31250  114.86250  121.82500  124.79375  124.79375  120.00625  120.00625
  7       Treasury return       5.61%      5.62%      6.57%      6.85%      6.15%      5.96%      6.05%  =YIELD(B4,$B1,B2,B5,B6,2,1)
  8     I Bond fixed rate       3.30%      3.30%      3.30%      3.40%      3.60%      3.40%      3.00%
  9  $100 I Bond grows to      369.76     360.36     351.40     349.84     352.60     326.28     291.76
 10   Nbr 6-month periods        47.0       46.5       45.5       44.5       43.5       42.5       41.5  =2*(YEAR($B1)-YEAR(B4))+(MONTH($B1)-MONTH(B4))/6
 11         I Bond return       5.64%      5.59%      5.60%      5.71%      5.88%      5.64%      5.23%  =2*((B9/100)^(1/B10)-1)
 12  Treas better/(worse)      (0.03%)     0.03%      0.97%      1.14%      0.27%      0.31%      0.82%  =B7-B11
nisiprius wrote: Fri May 20, 2022 4:10 pmSeries I savings bonds have no interest rate risk. Every kind of marketable bond has interest rate risk. That makes I bonds very special.
The table above shows that I Bonds lack of interest rate risk is a two-edged sword. It protects them if interest rates rise. But it hurts them if interest rates fall. The regular Treasury bonds are all priced above par because interest rates are now lower. But the price of the I Bonds does not benefit from real rates now being lower than the 3.0% to 3.6% when they were issued.

Sources:
The tax deferred nature of I Bonds has to have some after-tax benefit compared to TIPS and nominal treasuries held outside an IRA.
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Re: WashPo: Inflation-linked U.S. bonds crashed the TreasuryDirect website

Post by Call_Me_Op »

Mel Lindauer wrote: Fri May 20, 2022 2:39 pm
Tamalak wrote: Fri May 20, 2022 11:34 am Glad I didn't go for this. I-bonds have had a shining year, but their historical performance is nothing special compared to other kinds of bonds. Keep it simple!
You seem to be overlooking the fact that the early I Bonds paid (and continue to pay) from 3.0% to 3.6% PLUS inflation. That was definitely special when compared to other kinds of risk-free bonds that didn't even keep up with inflation. And the I Bonds were and are tax-deferred as well as free from state and local taxation. So they were (and still are) something special.
I don't know how many of us realized it at the time (when IBonds were paying over 3% real), but they were the nearly ideal investment - an investment with 30-year tax deferral, 3+ real return, can never lose value, Government guaranteed, state-tax exemption, and zero interest-rate risk. I can't kick myself too hard because I don't think I heard about them until the early 2000's (when the rate was down to 1%-2%) and started buying then.
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Re: WashPo: Inflation-linked U.S. bonds crashed the TreasuryDirect website

Post by bobcat2 »

I-bonds inflation protection and lack of interest rate risk makes them the safest investible security. That makes them special. The only security that would be as safe or perhaps safer would be a real perpetual Treasury bond. The Treasury in recent years has been urged by some financial experts, most notably John Cochrane, to issue real perpetuals, but so far neither the US Treasury nor any other government has issued any real perpetuals.

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Re: WashPo: Inflation-linked U.S. bonds crashed the TreasuryDirect website

Post by grabiner »

nisiprius wrote: Fri May 20, 2022 4:10 pm
Tamalak wrote: Fri May 20, 2022 11:34 am Glad I didn't go for this. I-bonds have had a shining year, but their historical performance is nothing special compared to other kinds of bonds. Keep it simple!
Series I savings bonds have no interest rate risk. Every kind of marketable bond has interest rate risk. That makes I bonds very special.
In addition, the return for the next six months is above the projected inflation rate, because of the lag in adjustments. (It was even better if you bought in April, as you locked in 12 months of past inflation rather than just 6.) Thus it is particularly attractive to buy I-Bonds now, and not to sell any that you currently hold until you get the inflation adjustment.
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Re: WashPo: Inflation-linked U.S. bonds crashed the TreasuryDirect website

Post by strummer6969 »

Mel Lindauer wrote: Fri May 20, 2022 2:39 pm
Tamalak wrote: Fri May 20, 2022 11:34 am Glad I didn't go for this. I-bonds have had a shining year, but their historical performance is nothing special compared to other kinds of bonds. Keep it simple!
You seem to be overlooking the fact that the early I Bonds paid (and continue to pay) from 3.0% to 3.6% PLUS inflation. That was definitely special when compared to other kinds of risk-free bonds that didn't even keep up with inflation. And the I Bonds were and are tax-deferred as well as free from state and local taxation. So they were (and still are) something special.
That type of risk free return is incredibly special. I wonder if we'll ever see anything like that again.
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Re: WashPo: Inflation-linked U.S. bonds crashed the TreasuryDirect website

Post by samsoes »

bobcat2 wrote: Sun May 22, 2022 9:37 am I-bonds inflation protection and lack of interest rate risk makes them the safest investible security. That makes them special. The only security that would be as safe or perhaps safer would be a real perpetual Treasury bond. The Treasury in recent years has been urged by some financial experts, most notably John Cochrane, to issue real perpetuals, but so far neither the US Treasury nor any other government has issued any real perpetuals.

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They are special indeed. So special, in fact, tomorrow I am getting Trust documents notarized so I can score an additional $10k in a TD entity account. This will be my first Trust in my nearly six decades.

I only hope that I don't have issues opening the TD eniity account...!
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