Here’s a shocker: I bought my 2016 allocation of I Bonds today

Savings-Bond-I

Yeah, I know. I have been in the wait-until-November camp, especially when it looked like the I Bond’s variable rate could fall to the negative on May 1. Instead it will reset to 0.16%, which was determined by the March inflation report.

The other factor was watching yields on the 5-year TIPS – an investment I consider very similar to an I Bond – dropping into negative real returns. When that happens, even a fixed rate of 0.0% on an I Bond is preferable to a 5-year TIPS. Plus you get tax-deferred income, a flexible maturity date and better protection against deflation.

Today’s auction of a new 5-year TIPS resulted in a real yield to maturity of -0.195%. Do the math. That’s 29 basis points lower than the I Bond’s current fixed rate of 0.10%  So I Bonds have suddenly gotten attractive again, even with a fixed rate of 0.1%.

But here’s the problem: that fixed rate might to drop to 0.0% on May 1. I think the odds are 50/50, and there’s no chance the fixed rate would rise to 0.2% or higher (my opinion – and I don’t work for the Treasury.)

Read my analysis on SeekingAlpha.com:

I Bond Investors: Is April The Month To Pull The Trigger On Your 2016 Allocation?

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7 Responses to Here’s a shocker: I bought my 2016 allocation of I Bonds today

  1. Silver_Stacker says:

    The whole position?

    You don’t feel that the November reset would be beneficial?

    • tipswatch says:

      Yes, I bought the entire allocation. The one factor is that November’s reset carries over to January 2017, so if it is very desirable, I can buy it then.

      • Silver_Stacker says:

        Ah, true enough.

        I’ll purchased half of mine, so we’ll see what November brings, other than turkey on the table and a new Turkey in Washington.

  2. “there’s no chance the fixed rate would rise to 0.2% or higher”
    Are you serious?

    • tipswatch says:

      There’s a chance, yes, because the Treasury does surprising things at times. The one time recent time it set the fixed rate at 0.2% – which was a shocker – the 10-year TIPS was yielding 0.50%. Today it is yielding 0.25%.

  3. Donald Crimble says:

    Looks like this one didn’t go your way.

    • tipswatch says:

      Donald, no this went exactly as I expected. I locked in 1.64% for 6 months, then 0.26% for six months, and I can buy again in January. The fixed rate stayed at 0.1%, which I consider a good thing, but no one is going to be buying I Bonds from May to October.

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