Post by Odysseus on May 1, 2022 23:42:03 GMT
Since LNF doesn't have a section for economic discussion, I thought I'd start a thread here. After all, investing may be a sport for some...
Here's a discussion of a special type of US Treasury bond, called an I-bond.
Basically, an I-bond is indexed to the inflation rate. The bond rate is a combination of a fixed rate and the inflation rate. The bond rate (AFAICT*) is adjusted every six months according to the latest inflation rate. However, unlike securities, the I-bond rate cannot fall below 0%. In April 2022, the I-bond rate was 7.12%. The fixed portion of that was 0%. The I-bond rate is expected to rise to 9.62% in May 2022, based on the latest inflation figures. Not too shabby!
The one catch, besides the possibility of the bond return rate falling as inflation drops, is that one can only buy a total of $10,000 of I-bonds per year. So they are basically of little value to the very wealthy. But for the average lower income investor, they can provide a relatively stable inflation hedge. And given the gyrations of the regular stock market, I-bonds may make a lot of sense for the smaller investor.
The other catches include one cannot sell an I-bond within 12 months and reap the interest proceeds. Also, if one sells an I-bond before five years of holding, one can lose the preceding three month's of interest returns.
Basically, an I-bond is indexed to the inflation rate. The bond rate is a combination of a fixed rate and the inflation rate. The bond rate (AFAICT*) is adjusted every six months according to the latest inflation rate. However, unlike securities, the I-bond rate cannot fall below 0%. In April 2022, the I-bond rate was 7.12%. The fixed portion of that was 0%. The I-bond rate is expected to rise to 9.62% in May 2022, based on the latest inflation figures. Not too shabby!
The one catch, besides the possibility of the bond return rate falling as inflation drops, is that one can only buy a total of $10,000 of I-bonds per year. So they are basically of little value to the very wealthy. But for the average lower income investor, they can provide a relatively stable inflation hedge. And given the gyrations of the regular stock market, I-bonds may make a lot of sense for the smaller investor.
The other catches include one cannot sell an I-bond within 12 months and reap the interest proceeds. Also, if one sells an I-bond before five years of holding, one can lose the preceding three month's of interest returns.
I purchased an I-bond in mid-April. I will probably purchase another one in May, to get the higher interest rate. And that rate has not yet been published by the Treasury, but it's likely to be over 9%.
(*AFAIKT ≡ As Far As I Can Tell)