iSavings bonds yielding 7.12% currently

[johnpane]

17 minutes ago, ValueMaven said:

Anyone looking forward to 1/1/23 to add more I Bond exposure?  

I've been reading that you can buy an additional $5,000 in paper-bonds with a US Tax Return.  Although it is a process to convert those paper-bonds into electronic forum at Treasury Direct.

 

You may want to look into using the gift box feature, if you haven't already done so.

[TwoCitiesCapital]

On 11/27/2022 at 10:22 AM, ValueMaven said:

Anyone looking forward to 1/1/23 to add more I Bond exposure?  

I've been reading that you can buy an additional $5,000 in paper-bonds with a US Tax Return.  Although it is a process to convert those paper-bonds into electronic forum at Treasury Direct.

 

I think at this point I don't expect the rate reset to be high enough for me to want to lock up money for 12-months.

 

We'll see where it prices at in May if I buy more, but I think corporates, mortgages, and maybe even treasuries have the opportunity to do better in 2023 and beyond with high coupons locked in and duration to hedge falling rates/inflation. 

 

Also, at some point in 2023, I expect the stock market to look better going forward too so want the cash available for that.  

[Red Lion]

I think shorter duration TIPS look like a really good alternative to I-bonds right now. You're getting about 140 more basis points of yield without any penalty. Even if rates keep going up the short duration should minimize any short term mark to market losses. The big risk to this would be the CPI going negative in a big way over the next few years. Even this can be mitigated by buying the 5 years treasuries at auction or close to the initial price without inflation adjustments since the TIPS will always be worth the original price at a minimum. 

 

Here's one maturing 1/15/26, 2% TIPS, trading at $100.38 pricing, YTM is 1.87% plus inflation. Cusip 912810FS2

 

 

[ValueMaven]

1 hour ago, RedLion said:

I think shorter duration TIPS look like a really good alternative to I-bonds right now. You're getting about 140 more basis points of yield without any penalty. Even if rates keep going up the short duration should minimize any short term mark to market losses. The big risk to this would be the CPI going negative in a big way over the next few years. Even this can be mitigated by buying the 5 years treasuries at auction or close to the initial price without inflation adjustments since the TIPS will always be worth the original price at a minimum. 

 

Here's one maturing 1/15/26, 2% TIPS, trading at $100.38 pricing, YTM is 1.87% plus inflation. Cusip 912810FS2

 

 

 

Thank you @RedLion - I still dont fully understand TIPS however.  

[lnofeisone]

3 hours ago, RedLion said:

Even this can be mitigated by buying the 5 years treasuries at auction or close to the initial price without inflation adjustments since the TIPS will always be worth the original price at a minimum. 

 

 

If inflation ticks down, TIPS principal value will go down and can go sub $100 in the interim. TIPS holder would need to hold through maturity (1/15/26 in the example above) to recover and that would make this a non-ideal situation if someone is looking to reposition from bonds to stocks.  

[TwoCitiesCapital]

On 11/28/2022 at 11:29 AM, TwoCitiesCapital said:

 

I think at this point I don't expect the rate reset to be high enough for me to want to lock up money for 12-months.

 

We'll see where it prices at in May if I buy more, but I think corporates, mortgages, and maybe even treasuries have the opportunity to do better in 2023 and beyond with high coupons locked in and duration to hedge falling rates/inflation. 

 

Also, at some point in 2023, I expect the stock market to look better going forward too so want the cash available for that.  

 

Hard to know exactly what the reset rate will be, but it's looking like it'll be in the ballpark of 2.25 - 2.75%. 

 

Quite a bit less attractive than the 6.9 - 9.2% returns of the last 15 months. 

 

I think I'll be liquidating a good portion of these as they roll into those lower rates and I'm only taking a 3 month penalty on a sub-3% rate. 

 

Not a bad time to be rolling them into 2-year treasuries @ 4.9% with similarly limited duration risk. 

Edited March 3, 2023 by TwoCitiesCapital

[TwoCitiesCapital]

On 3/3/2023 at 3:54 PM, TwoCitiesCapital said:

 

Hard to know exactly what the reset rate will be, but it's looking like it'll be in the ballpark of 2.25 - 2.75%. 

 

Quite a bit less attractive than the 6.9 - 9.2% returns of the last 15 months. 

 

I think I'll be liquidating a good portion of these as they roll into those lower rates and I'm only taking a 3 month penalty on a sub-3% rate. 

 

Not a bad time to be rolling them into 2-year treasuries @ 4.9% with similarly limited duration risk. 

 

Was a bit pessimistic on the rate reset - Bloomberg is estimating 3.8% for the upcoming reset. 

 

I Bonds Lose Their Luster With Yield Set to Plunge Below 4% https://www.bloomberg.com/news/articles/2023-04-12/i-bonds-interest-rate-for-2023-yield-is-expected-to-fall-below-4-in-may

 

Was dead right on 2-years @ 4.9% that have now been bid down to 4.0%. Ultimately -  it does look like it was the right call to eschew adding more of these @ 6.9% when I suspected we'd be resetting majorly lower as I've been able to lock in marginally higher yields elsewhere for the year AND have a slight duration exposure if the Fed cuts. 

 

[Spekulatius]

I think I wait 3 more month after the reset to redeem mine (lose interest for the last 3 month) and then probably move to ST treasuries.

[johnpane]

New bonds are predicted to be ~3.8% if the fixed component remains around 0.4%. If you bought when this thread started there was a 0% fixed component, in which case the new rate will be more like 3.38%.

 

I am also inclined to get out after holding 3 months at 3.38% which will be forfeited. I think annualized rate over 21 months (since Nov '21 or subsequent 5 months) will work out to something like 6.6%.

 

Edited April 12, 2023 by johnpane

[CorpRaider]

You guys are the hot series i savings bond money.

Edited April 12, 2023 by CorpRaider

[TwoCitiesCapital]

1 hour ago, CorpRaider said:

You guys are the hot series i savings bond money.

 

 

It was just the only fixed income option that made sense at the end of 2021.

 

7% govt guaranteed and NO price risk and tax deferred!?! In an environment where everything else still basically yielded 0%. The relative to return to equities AND fixed income since has been absolutely insane. 

 

But now, almost everything else yields higher and you probably want a little price risk going forward to hedge an environment/economy that the Fed cuts in. 

 

Just really about the opportunity cost of losing 3-months of accrual verses the yield pick-up you get. If short -term bonds will still get me 5-6% YTMs in 3-6 months, it might be a worthwhile swap. 

Edited April 12, 2023 by TwoCitiesCapital

[patience_and_focus]

3 hours ago, johnpane said:

New bonds are predicted to be ~3.8% if the fixed component remains around 0.4%. If you bought when this thread started there was a 0% fixed component, in which case the new rate will be more like 3.38%.

 

I am also inclined to get out after holding 3 months at 3.38% which will be forfeited. I think annualized rate over 21 months (since Nov '21 or subsequent 5 months) will work out to something like 6.6%.

 

Why can't the fixed component go higher than 0.4? Agree that if it doesn't and we get mid 3 as the rate I will liquidate also after 3 months of new rate kicking in.

[johnpane]

1 hour ago, patience_and_focus said:

Why can't the fixed component go higher than 0.4? Agree that if it doesn't and we get mid 3 as the rate I will liquidate also after 3 months of new rate kicking in.

It could, but would only apply to new purchases. Bonds purchased in 2021 through Oct 2022 have a fixed component rate of 0% for the life of the bond. Hence the term "fixed".

Edited April 13, 2023 by johnpane
more accurately state end date of the 0% fixed component

[patience_and_focus]

40 minutes ago, johnpane said:

It could, but would only apply to new purchases. Bonds purchased in 21-22 have a fixed component rate of 0% for the life of the bond. Hence the term "fixed".

Makes sense. Thanks!

[CorpRaider]

haha.  I just hit it with the $10K most years as the "emergency" savings fund and get a little more tax deferred space.  [Though I usually have more tax advantaged space than income.  I'm like the tantalus of tax jocks.]

Edited April 13, 2023 by CorpRaider

[lnofeisone]

Just a friendly reminder that the ibonds accrue interest on the first of the month so selling on the first day of the month will get you the same amount as selling on any other day of the month. 

 

(the other quirk is that the bonds will credit you for the whole month even if you buy on the last day of the month). 

[texual]

Planning on selling my ibonds in August/September and rolling these into treasury bills. I've been laddering short term paper for a few months to capture some of the yield. 4-17 week duration only. I think I did get a 26 week note. The rates are a bit up/down lately and could potentially drop but I would prefer to just sock it into the market if that happened. 

[Spekulatius]

59 minutes ago, texual said:

Planning on selling my ibonds in August/September and rolling these into treasury bills. I've been laddering short term paper for a few months to capture some of the yield. 4-17 week duration only. I think I did get a 26 week note. The rates are a bit up/down lately and could potentially drop but I would prefer to just sock it into the market if that happened. 

This is exactly my plan.

[Red Lion]

+1

[johnpane]

Fixed rate on new purchases will be 0.9% . Combined with a 3.4% inflation component, the full rate for May-Oct 2023 will be 4.3%.

[patience_and_focus]

58 minutes ago, johnpane said:

Fixed rate on new purchases will be 0.9% . Combined with a 3.4% inflation component, the full rate for May-Oct 2023 will be 4.3%.

Oof, this is close enough so if I let go of 3 months of interest, I am getting 5.18 for 3 month for Treasury bonds (nearly the max among any duration). That in total for 6 months is certainly less that if I wait for another reset assuming that treasuries stays around the same in 3 months. 

 

Will have to come back again in 3 months to reevaluate.

[johnpane]

Remember, only newly purchased i-bonds get that fixed rate. Bonds previously purchased get the same fixed component they originally received: 0.4% for purchases in the most recent 6-month window, and 0% for several windows prior to that. 

Edited April 28, 2023 by johnpane

[aws]

Seems like the play is to keep short-term cash in money market equivalents for now and see what the new rates (especially the fixed rate) are in late October. If the fixed rate were set to go down a lot in November then you could still have some time to lock it in for the life of the bond. 

[patience_and_focus]

6 hours ago, johnpane said:

Remember, only newly purchased i-bonds get that fixed rate. Bonds previously purchased get the same fixed component they originally received: 0.4% for purchases in the most recent 6-month window, and 0% for several windows prior to that. 

Which I keep forgetting!

[lnofeisone]

On 4/28/2023 at 3:07 PM, patience_and_focus said:

Oof, this is close enough so if I let go of 3 months of interest, I am getting 5.18 for 3 month for Treasury bonds (nearly the max among any duration). That in total for 6 months is certainly less that if I wait for another reset assuming that treasuries stays around the same in 3 months. 

 

Will have to come back again in 3 months to reevaluate.

If you buy on the last day of the month - you get full month credit. If you sell on the first day of the month - you'll get full month credit. So really, you can time it so you only lose 1 month of interest.