US Series I Savings Bonds Now Yielding 7.12%
treasurydirect.gov
treasurydirect.gov
Right now it yields 7.12% because the last inflation number was really high, but once inflation goes back to normal, the yield will be much lower.
Is it transitory as they unflinchingly claimed or are we in the Carter Years?
Bill Maher has expressed frustration with lockdowns throughout the pandemic. That he holds the view you mention does not seem surprising or remarkable to me.
(He also seems like an unusual choice to bring in as an authority on this topic. He is primarily a comedian.)
(*) According to FDA/CDC and Israel, which are promoting the 3rd boosting shot in less than a year and anticipating the 4th.
They called it the Great Depression, I suspect it's about to get renamed. This is going to suck.
The supply chain looks ready to collapse, along with public confidence in all of our institutions. History doesn't repeat, but it sure is rhyming, quite loudly right now.
There are many many months of rent and utility bills that haven't been paid. Due to the massive shift to remote work, commercial office space is likely to experience a 50% or more occupancy drop (maybe even worse?). Our large urban centers have a funding model that is suddenly unsustainable if this happens.
Everything to me, at least, is screaming danger, danger Will Robinson.
If we huge inflation, then all these expensive mortgages people stretched for the last few years will be super cheap, so all of a sudden majority of Americans will be out of debt, for example.
All those empty commercial properties instead of foreclosing will simply rent home out for "low rent" purposes like gyms, but that low rent in inflated terms will cover the cost of their lease/mortgage.
It could be messy, and will need support from many players, but I don't think we are looking at a Greater Depression.
Your point seems mostly like demagoguery. I think the more interesting question is... is 5% actually bad? There's a real argument to be had here that rapid inflation reflects genuine improvements like rising wage levels and that it's worth paying for. Remember that the "biggest losers" in inflationary economies are people who hold assets, not investors (whose returns accomadate faster than things like loan terms) or wage workers (who don't have significant assets to depreciate and whose wages track inflation well).
As far as I can recall, the current system is 'calibrated' for 2-3% annual growth. 5-8% is entering the banana republic inflation zone. You, know, where they'd have to 'devaluate' their currencies to make up the difference?
This is simply untrue. Like not even close the definition of hyperinflation used by economists. Hyperinflation is a monthly inflation rate of 50%, or 12974.63% annually.
This is scare tactics.
High inflation is what we had during the Carter years. People who lived though it say it was awful. Five per-cent may be on the cusp, but 8% is getting up there where it eats up a wage earner's buying power.
Now if I was some über rich dude with millions of capital tied up high friction investments, forced to choose between paying capital gains taxes or losing to inflation, i may feel differently.
Frankly, we need to put shitty businesses that exist by virtue of low interest rates out of business. It should not be feasible to buy thousands of single family homes as investment property, for example.
But your average Joe and Jill in the world working restaurants or deliveries, they can't just shrug it off.
The "poor" are, in fact, doing significantly better (economically, anyway) now than they were in 2019. I'll have to go look it up, but there was a great blog post a few months back looking at poverty statistics over the pandemic. The relief bills helped a ton.
Those are transitory, and even if they become permanent, never forget, inflation is a compounding process, so to keep up there must be the political will to re-up them. Moreover, the irony is that the way to fund the relief bills is to create more inflation.
You are advocating putting all of society on an accelerating treadmill that pushes people backwards towards poverty.
Exactly. So is the pandemic. And so is the resulting inflation. I think you agree with me.
Inflation is nothing but fucking over the people who can handle it the least.
It’s like has prices. They go up before the new delivery is in the grind tanks, but goes back down way after the expensive gas in the ground was all sold.
The biggest losers among sophisticated, moneyed actors are indeed people who hold assets.
But the biggest losers overall are those with fixed incomes dealing with rapidly rising prices.
And therein lies one of the big pseudo-centrist points here. A mild reduction[1] in fixed-rate entitlement programs is coming down the pipe at some point regardless. This essentially gets the hard part of that political calculus out of the way "for free" (or at least in a cheaper way, since you can blame covid).
[1] Contra the nutjobs who predict the Death of Social Security or whatnot.
No, if anything it hastens having to deal with the hard part, since SS benefits are wage indexed during employment and CPI-indexed in retirement, not fixed. Inflation drives up the nominal $ cost for current retirees, and, ceteris paribus, hastens trust fund depletion.
Telecom? Utilities? Mining?
This is widely stated, but only barely accurate sentiment.
First, index funds do good at 1 thing - which is provide "market returns". Market returns is basically defined by an index, so naturally the definition is circular. The parent mentioned dividends, which are not the normal target for investors (but useful for retirees and others who want an "income" from investment). Dividend stocks may do worse at beating market returns, but better at income generation.
So, non-SS pensioners?
Not: Social Security recipients (it has an inflation-indexed COLA).
Not: public benefit recipients (this inflation is in part a product of temporary increases to aid at the lower end of the economic spectrum).
Not: low-end labor, where prices are being bid up. (And also, often a beneficiary of the previous point.)
If inflation were “good” then the US along with many countries the word over would cause it to happen —it’s easy to do.
Literally every single one of them that controls its own monetary policy (including the US) actively and deliberately does, so there's that.
What I mean is if what we have now (which is about double the norm) were good, we would have done it a long time ago and so would have others.
If we had the previous inflation measure (same as 1970s), CPI would be closer to double digits now (because of housing appreciation over the last year).
https://www.wsj.com/articles/inflation-numbers-1970s-cpi-hou...
Like it or not "home values" decoupled from "housing costs" over the past two decades. The reason for that metric change was to preserve equivalency, you don't get to argue backwards because of it.
you mean, once the "inflation number" goes back to normal.
Inflation (supply of money) has been high [0] for literally decades. It won't get lower for a long time. It may never EVER go "back to normal." Normal would put us in a very bad macroeconomic position relative to all other nations. Why would we, the purveyor of the Petrodollar, do that?
The formula is: Composite rate = [fixed rate + (2 x semiannual inflation rate) + (fixed rate x semiannual inflation rate)]
7.12% = [0.0000 + (2 x 0.0356) + (0.0000 x 0.0356)]
This rate is only valid until the inflation rate gets re-adjusted after 6 months. There is an interesting chart showing what the fixed rates and inflation rates have been throughout the history of this bond.
For those considering investing in this, there is a $10,000 max per eligible person. Eligibility includes: 1) United States citizen, whether you live in the U.S. or abroad. 2) United States resident. 3) Civilian employee of the United States, no matter where you live.
Parents can buy these bonds for their children, so a family of four could invest $40k earning 7.12% for at least 6 months. Eligibility requirements are here: https://www.treasurydirect.gov/indiv/research/indepth/ibonds...
For comparison, TIPS trade at a negative real yield [1].
[1] https://www.treasury.gov/resource-center/data-chart-center/i...
I'm sure you know this so this comment is more for the casual reader: "I bonds earn interest for 30 years unless you cash them first. You can cash them after one year. But if you cash them before five years, you lose the previous three months of interest."[1]
Worth keeping in mind these aren't really short-term investment vehicles. But earning 2x inflation rate is pretty decent for a low-risk investment.
[1]: https://www.treasurydirect.gov/indiv/research/indepth/ibonds...
Maybe you mean this anyway, but your statement could be misunderstood: One doesn't earn twice the inflation rate. It is multiplied by two to give an annual rate that can then be combined with the annual fixed rate. When calculating the coupon, you would of course have to adjust for half a year.
We could experience very high inflation, but hyperinflation is becoming a random word that people throw around without understanding the definition.
Savings Bonds aren't traded. Their yield is calculated by the Treasury from the non-seasonally adjusted Consumer Price Index for all Urban Consumers (CPI-U) for all items, including food and energy. As such, it offers no more information into the future course of inflation than the CPI-U itself.
The data you're looking for are the 10-year breakeven inflation rates [1], which ares calculated from the premium the market places on the Treasury's tradable inflation-protecting bonds [2] and its tradable standard bonds.
[1] https://fred.stlouisfed.org/series/T10YIE
[2] https://www.treasurydirect.gov/indiv/products/prod_tips_glan...
Ended up doing inspect element, and deleting the readonly attribute. That worked. Super weird.
CDs are FDIC insured, bonds aren't. This doesn't make a big difference when we're talking government bonds, but you can lose your shirt on a regular corporate/muni bond. You'll always get CD money back (subject to 250k FDIC limit)
Bonds also are also an asset that fluctuates in price: A bond can be sold at a price different from it's face value. This means that if interest rates rise, you're going to not be able to sell the bond for the same price you've bought it for. This is because you need to make up for the lower interest rate. CDs are just basically a loan on cash. Bonds are an asset (not cash!) that pays interest.
FDIC insurance is backed by the US Government. US Saving Bonds are backed by… the US government. They can be redeemed at any time, subject to certain constraints. They are not tradable bonds — a TIPS bond would be the US government instrument that is tradable and inflation protected.
CDs, TIPS (Treasury Inflation Protected Securities), MBS (Mortgage Backed Securities), Munis, Corporates... these are all so called "debt instruments".
Your question is roughly equivalent to "What is the downsides to investing into Stocks instead of AAPL??" Well... sometimes AAPL goes up, sometimes it goes down. Stocks are... well... AAPL -IS- a stock.
Similarly, CDs are typically a specific kind of bond: the type you get from a bank. But banks also sell traditional bonds.
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The main benefits of CDs is that they're (usually, but not always) FDIC insured. So if the bank goes bankrupt, the US Government steps in and will give you your money back.
The main benefits of "bonds" (which are a very, very broad category consisting of literally thousands, maybe millions of different things)... is that typical bonds can be sold on the open market.
That means that if the interest rates go down, you can sell bonds at a higher price. (Look, I have a 5% bond, and all you suckers are stuck getting 0.5%. Feel like trading? I'll sell you my $10,000 5% bond to you for $11,000.)
Of course, if interest rates go up, then bonds lose value. (Shoot, I have a 0.1% bond and everyone else has 0.5% bonds. I don't want to be stuck with this anymore, feel like buying this $10,000 bond off of me for $8500?)
In that context, the argument is that this can be a good place to keep an emergency fund, provided one has enough emergency cash in other places to bridge the first year before the I Bond can be first redeemed. The withdrawal penalty between years 1-5 is 3 months of interest, so not terrible if being withdrawn in an emergency.
No one's getting rich off this instrument, but it could be a good low hanging fruit option for some.
It’s backed by the full faith and credit of the US government and interest isn’t taxed until redemption, so it’s probably the safest/simplest investment for a retail saver that’s out there.
At 5% interest, it takes 14 years to double. At 10%, 7.2 years.
Inflation doesn't just go from 1% to 1000% in a year, it has its own growth rate and takes years to develop. If you're worried about inflation, you should be looking at yearly growth, like 5% this year, 10% 2022, 20% in 2023, etc. This became a problem in those places because for various reasons, those societies were utterly dysfunctional and could not react and contain it.
(Edit: two replies have taken this out of context. Savings bonds have a minimum term of five years (well, without penalty). For them to have a negative yield, we need to see aggregate inflation >7.12% over the next five years. That's nuts, sorry. No one is predicting that.)
"How is the interest rate of an I bond determined? The interest rate combines two separate rates:
A fixed rate of return, which remains the same throughout the life of the I bond.
A variable semiannual inflation rate based on changes in the Consumer Price Index for all Urban Consumers (CPI-U). The Bureau of the Fiscal Service announces the rates each May and November. The semiannual inflation rate announced in May is the change between the CPI-U figures from the preceding September and March; the inflation rate announced in November is the change between the CPI-U figures from the preceding March and September."
So its fairly safe to assume that current inflation levels are indeed 7%.
Housing inflation has averaged 14% to start.
https://www.reuters.com/world/us/runaway-us-home-price-rises...
Edit: I agree this could be a sign of something long term
Edit: recent history of rates
-- Inflation rates --
Nov 2021 3.56%
May 2021 1.77%
Nov 2020 0.84%
May 2020 0.53%
Nov 2019 1.01%
May 2019 0.70%
Nov 2018 1.16%
May 2018 1.11%
Nov 2017 1.24%
May 2017 0.98%
Nov 2016 1.38%
May 2016 0.08%
Nov 2015 0.77%
May 2015 -0.80%
-- Fixed Rates above 0 or .1% --
Nov 2019 0.20%
May 2019 0.50%
Nov 2018 0.50%
May 2018 0.30%
The overall rate can't go below 0% The formula is: fixed rate + (2 * inflation rate) + (fixed rate * inflation rate)
So for these 6 months: 0 + (2 * 0.0356) + (0 * 0.0356)] = 0.0712
I wouldn't purchase these bonds for a number of reasons, but I do think it's worth noting that the case for today's inflation being something more than "transitory" is stronger than the case for today's inflation being "transitory".
Trying to navigate the environment today while looking in the rearview mirror is a good way to crash your portfolio.
Combining the two rates To get the actual rate of interest (sometimes referred to as the composite or earnings rate) we combine the fixed rate and the inflation rate, using the equation in the example below.
The combined rate will never be less than zero. However, the combined rate can be lower than the fixed rate. If the inflation rate is negative (because we have deflation, not inflation), it can offset some of the fixed rate. If the inflation rate is so negative that it would take away more than the fixed rate, we don't let that happen. We stop at zero.
Yeah as the sibling commented. It is written in the link from the link where they bring up the formula.
Credit card APRs are meaningless to me. I learned the hard way to never hold a balance on them. Yet another financial racket doomed to keep people poor. Those rates are absurd.
There is absolutely no reason that people should be storing their money in a place that gets to use it however they want and charge you for that too. Never mind the endless printing and excessive taxation. Bankers aren't driving Kia's, but everyone else is.
- CPI-U for 2020-2021 is around 5.4% and this table breaks down the different areas it measures: https://www.bls.gov/news.release/cpi.t01.htm
- And some info on the CPI-U: https://www.investopedia.com/terms/c/cpiu.asp
From looking at the 2020 - 2021 breakdown, and if I am interpreting this correctly, the biggest single category change is in energy at almost 25% with a contribution of ~1.81% to the index.
If you want to see what market thinks, follow:
Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity, Inflation-Indexed https://fred.stlouisfed.org/series/DFII10
Currently at -1%
Have these ever lost money ?
7% yield is outrageously good assuming you can't lose money. Then again US currency might be worthless if they default on these.
EDIT: Never mind, these are savings bonds and can't be traded
[0] - https://www.treasurydirect.gov/indiv/research/faq/faq_irstax...
Furthermore, because these are the direct rates (e.g. for new bonds purchased from US government offerings), they're whatever the US government decides (in this case, CPI calculated).
What you're probably confusing is post-issue market bond rates, which would be indicative of the market's opinion of future inflation.
> We set the inflation rate every six months (on the first business day of May and on the first business day of November), based on changes in the non-seasonally adjusted Consumer Price Index for all Urban Consumers (CPI-U) for all items, including food and energy.
We will know in another 6 months.
EDIT: S1 bonds apparently aren't fixed forever. Thanks Purple_ferret points out that part of the rate changes, as it is based on a fixed rate and the inflation rate. This is why I have an RIA to filter all my decisions.
From the web:
"Inflation rate
Unlike the fixed rate which does not change for the life of the bond, the inflation rate can and usually does change every six months.
We set the inflation rate every six months (on the first business day of May and on the first business day of November), based on changes in the non-seasonally adjusted Consumer Price Index for all Urban Consumers (CPI-U) for all items, including food and energy.
However, the change is applied to your bond every six months from the bond's issue date. (The dates for these changes might not be May 1 and November 1.) When does my bond change rates? "
(1.072)*(1.072)*(1.072)*(1.072)*(1.072)*(1.072)*(1.072)*(1.072)*(1.072)*(1.072) = ~2.00
Now that inflation is higher, returns are higher.
Explainer from a different page: https://www.investopedia.com/best-savings-bonds-5196440 which had the rate of 3.54% as of August. Presumably it's shot up due to inflation estimates. In which case you should probably buy some immediately if you have spare cash and want a risk-free return and meet the other criteria.
I used to have the UK equivalent until the particular product was phased out, but it appears that a newer version is available.
It's only been over 5% since July, not YTD: https://ycharts.com/indicators/us_inflation_rate
I know for my family, the only significant inflation factor is food. I have a short commute and fixed mortgage. For my family members who live in the exurbs, fuel costs are very impactful.
Rural inflation isn’t captured well because rural areas have been depopulating.
On Kucoin you can make money by lending out stablecoins to margin traders. Here are some of the current rates:
Lend USDC for 7+ days: 17.52%
Lend USDC for 14+ days: 20.44%
Lend USDC for 28+ days: 20.80%
Margin lending is safer than most other forms of lending because margin loans are fully collateralized and if the borrower gets a margin call, their assets are auto-liquidated to pay you back. In the rare event that the system couldn’t get back all of the collateral, the difference is paid out from an insurance fund that about 10% of interest is paid into.
Benefits: 1) interest is paid out daily and can be (automatically) reinvested. 2) your investment can be pulled out in 7-28 days or less if the borrower pays you back earlier. 3) there is no interest forfeit penalty that these bonds have.
Drawbacks: I don’t think there is any 7% yielding asset in the world that is as safe as a US government bond.
Disclosure: I don’t do this myself, hold many bonds, or keep much cash. This is a financial suggestion but it is not a financial recommendation. Do your own research.