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interesting times for the I-bond

April 17th, 2009 at 09:39 pm

Thursday
Saving log - $6 tip box
Spending log - $162 electricity bill (for 2 months)

Friday
Saving log - $0 tip box
Spending log - $0

You might recall a couple of years ago a minor I-bond craze when the interest rate was 6%. I wonder how Treasury is going to play I bonds come May 1. The Consumer Price Index, Urban (CPI-U) average for the last six months was -5.5%.

I-bond interest rates are set in May and November for the six months at a time. They are comprised of a fixed rate, set by Treasury, and a variable rate, based on the CPI-U for the previous six months. When the CPI-U goes negative, the variable rate is set at 0, leaving just the fixed rate.

Most of my I-bonds have a fixed rate between 1 - 1.4% (I got in a bit late - when I-bonds were first rolled out they sported a fixed rate in the 3% range), generally but not always following the 12 month T-bill rate. In the last year, the fixed rate was 0.7% and 0%.

So it will be an interesting decision for Treasury. Will they offer an I-bond for 0% (0% fixed and 0% variable), that only a freakin' idiot would buy? (If you bought an I-bond six-seven months ago, you will hold an I-bond that will pay 0% for six months.) Or perhaps a 0.7% one that only a slightly smarter person would buy? Or will they decide that since a saver can only buy 5K worth of bonds, and perhaps determine that some should be sold (big ifs) that they will offer a reasonable fixed rate?

Any of those situations make it interesting times for the I-bond. At the very least, Treasury will tell us what they think of I-bond buyers.

1 Responses to “interesting times for the I-bond”

  1. disneysteve Says:

    There have already been Treasury auctions for bonds paying 0%. That happened a few weeks ago and they sold millions of dollars worth of them. As I understand it, those were mostly bought by institutional buyers who need a safe place to park large amounts of cash. I suspect that I-bonds are bought mostly by individuals who probably won't be so eager to purchase them at 0%.

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