Saturday, March 31, 2012

I-Bond Rate Prediction for May 1st, 2012

Okay, here it is.


Big shocker, huh?

I'm basing my prediction on two assumptions.

1. Contrary to popular opinion, we're still in crisis mode.
2. The I-Bond fixed rate cannot fall below zero.

Click to enlarge.

Based on current 5-year TIPS rates, the I-Bond rate would be -0.1%.

Click to enlarge.

Based on current 10-year TIPS rates, the I-Bond rate would be -0.3%.

You will note that the crisis trend lines do not include the last three data points. That's because the 0.0% I-Bond rate is a hard floor and would therefore distort the the picture. I was willing to use one previous 0.0% I-Bond rate (May 1, 2008) but only because I felt the distortion was minimal.

For what it is worth, I did my I-Bond buying in January. I didn't see much hope that I-Bond rates would rise this year. I could be wrong but I still feel that way. This is not investment advice.

I will offer a prediction for the composite rate (including inflation) in a few weeks. In order to make that prediction I will need to see what the CPI did in March. That won't be released until
April 13th.

Source Data:
I Savings Bonds Rates & Terms
U.S. Treasury: Daily Treasury Real Yield Curve Rates


Stagflationary Mark said...

Also note that even if we were not in crisis right now, I-Bond rates would only be 0.4% to 0.6% based on today's TIPS yields.

Prosperity here we come and/or went!

Stagflationary Mark said...

Here's a special offer to the US Government.

I'll pretend to believe we are not in crisis when I see I bond rates back on the black trend line.

It's a pretty good deal for you actually. Just think of all the heckling I'm currently doing at your expense.

I'm such a sellout.

Dealing with Hecklers

Lose eye contact with that person. Pretend they don't exist. Others know he is being rude and by doing this, he is the one who looks bad, not you. By losing eye contact and not reinforcing his behavior you may see he will stop.

This also works for me of course. I do not want to come to the attention of those in authority. I should warn you that I am a persistent heckler though. It's almost like a hobby of mine. ;)

Stagflationary Mark said...

Apologies to mab and Troy for comments trapped in the SPAM filter again. They've just been published.

Troy said...

Just for "fun" I revised CBO's 2030 spreadsheet a little . . . substituting 1/2 the real growth they envision to 2030:

1.7% 1.6% 1.6% 1.8% 1.8% 1.4% 1.1% 1.1% 1.3% 1.0%
1.3% 1.0% 1.0% 1.2% 0.9% 0.9% 1.1% 1.1% 1.1%

but keeping revenue at percent of GDP and expenses as they project.

For 2020 they foresee a deficit of $375B vs. my numbers: $450B (primary) + $872B (interest)

Their 2030 number has a $400B deficit, $19.2T national debt on a $24T economy.

My 2030 number has a $3.2T deficit, $43T national debt on a $19T economy. That sounds bad but it's only 230% Debt-to-GDP.

The above was using their predicted interest rates (which smoothly rise from 2% to 5% between now and 2030). Limiting that rise to 3% (what interest rates are telling us), changes the 2030 situation to a $2.1T deficit ($1.1T primary and $1T interest) and a $34T national debt (180% of GDP).

Japan situation averted!

Stagflationary Mark said...


In 2030, my earliest I-Bonds will begin to mature and I should be within a decade or so of my life expectancy, so I got that goin' for me, which is nice, lol.

Stagflationary Mark said...

Oh, uh, there won't be any money, but...