Friday, April 13, 2012

I-Bond Prediction Update for May 1, 2012

I'm predicting a fixed rate of 0.0% and a composite rate of 2.21%.

In September 2011 the CPI-U was 226.889.
In March 2012 the CPI-U was 229.392.

That's a 1.103% increase over the six month period. Inflation has been fairly tame.

Fixed rate = 0.00%
Semiannual inflation rate = 1.103%

Composite rate = [Fixed rate + (2 x Semiannual inflation rate) + (Fixed rate x Semiannual inflation rate)]
Composite rate = [0.0000 + (2 x 0.01103) + (0.0000 x 0.01103)]
Composite rate = [0.0000 + 0.02206 + 0.0000000]
Composite rate = 0.02206
Composite rate = 2.21%

Source Data:
I Savings Bonds Rates & Terms
St. Louis Fed: CPI


Mr Slippery said...

2.21% would be a weak rate, a discouraging rate. Almost like it is getting harder to make money from money. I know I've heard that somewhere.

Stagflationary Mark said...

Mr Slippery,

Crazy theory!

It's probably something you heard on the Internets.

10-Year Treasury Yield: 2.02%

Anonymous said...

Thought on the E-Bond rate?

Stagflationary Mark said...


Good question. I'll put up a formal prediction soon.

Here's an informal one.

EE Savings Bond Rate Prediction for November 1, 2011

I predicted 0.3% last time. It came in at 0.6%.

Interest rates are lower right now. I would therefore say that the rate will be lower than the 0.6% we saw last time.

That rate is not the reason I like EE Bonds though.

Extreme EE Savings Bond Mispricing

Although the government has set the short-term interest rate of EE Savings Bonds at just 0.6% it has not altered the original term (the time needed for the bond to double in price). That's still set at 20 years and if held that long the bond will yield 3.53% per year.

3.53% for 20 years is currently better than the alternatives. Further, if rates were to spike up in the short-term you could cash the bonds out without having to take a capital loss.