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Comment by CJefferson | Hacker News Reader

Does anyone want to explain why this is an interesting story?

7% on a bond is very good. 7.2% doubles every 10 years. For those of us getting older with lots of stock assets, we (conservative investors) want to transition to something safe so that smash-and-grab market fluctuation don't make us lose our money in retirement. Tiered bonds are something safe to do when you hit your mid 50's once the "thrill" of investing in what are today called "meme" stocks ("penny stocks" in the 80's/90's) has passed.

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? "

These look like a variable rate though that adjusts every 6 months.

Yes, thanks, just updated my post.

Using A = P(1 + rt) and setting A = 2P and t = 10 gives r = 1/10 or 10% -- where is my math wrong?

It's exponential growth.

(1.072)*(1.072)*(1.072)*(1.072)*(1.072)*(1.072)*(1.072)*(1.072)*(1.072)*(1.072) = ~2.00

It should be A = P(1 + r)^t because of compounding.

People aren't reading the link and don't realize that it's 1. an I bond not a T bill and 2. Has a variable interest rate based on measured inflation that adjusts twice a year (the 7.12% in the title is the combined rate, so it can change during the term of the security).

In particular the fixed rate component is 0%. It will match inflation but not beat it.

It can beat inflation but only in a very certain/rare circumstance - inflation followed by deflation (since the nominal return on the bond can never drop below 0%).

For quite a long time now money has been cheap and there has been a lack of investments with good returns; i.e. you could get very safe investments at 1% return or less. 7% is a relatively huge yield for safe bonds (the standard US treasury 12month security rate seems to be 0.12% now, much lower), so it seems a bit surprising.

It’s about as safe an investment you can make and it’s a super high yield.

But the rate is only for 6 months and limited to $10000 per SSN per year, which does not make it terribly useful.

FWIW, you can get purchase[0] up to an additional $5000 a year in paper format if you overpay your Federal income taxes and request the refund be paid as a paper I-bond.

[0] - https://www.treasurydirect.gov/indiv/research/faq/faq_irstax...

It also seems like you can pay an extra $5K in estimated tax in December, use the refund of it to buy a series I bond and then convert that to an electronic bond.

seems very useful for a $10k investment, if it's going to make a considerable amount for that $10k.

It's breaking even based on the current rate of inflation. It doesn't yield any positive returns.

The $10K limit is for I-bonds. If you want more inflation protection from the treasury, you can buy TIPS up to $5M.

Is it available to non-US citizens?

No, but you have to be a resident or work for the US oversees if not a citizen.

Typical inflation protected bonds pay maybe half this? Because, well, inflation was low.

Now that inflation is higher, returns are higher.

Inflation hawks are very excited that their stopped clock is finally on time.

Proof that the inflation we are experiencing is structural not transient.

It proves nothing of the sort. The method they use to calculate the current rate is simple and immediate.

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.

I’m not sure of that the rate is adjusted twice a year. Inflation was high in the previous 6 months so the rate is higher.

We will know in another 6 months.

https://www.nytimes.com/interactive/2021/08/18/opinion/infla...

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