March Inflation Data Good News for TIPS and I-Bonds

I posted two articles worth reading. They are:

• Wednesday, April 16, 2008
  I-Bond Rates To Soar on High Inflation Data
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• Tuesday, April 15, 2008
  March Inflation Up on Higher Energy and Food Costs

Vanguard's TIPS index fund (VIPSX) was up 11.59% in 2007 and is up 4.74% YTD in anticipation of these high inflation readings. With inflation expected to moderate, I don't expect to see this level of performance continue.
Disclaimer: I have a fairly large position in TIPS in both my personal account and some of the newsletter porfolios in "The Retirement Advisor" investment letter. I also recommend TIPS as part of a 3-item alternative to the easy to track "Total Bond Fund" in "Kirk Lindstrom's Investment Newsletter" where I may again recommend iBonds with these attractive rates.
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Come join us to discuss "I Bonds or iBonds" in our facebook forum "Investing for the long term."

New I-Bond Rates, November 2007 reset

Posted on our Facebook Forum by Runner Twentysix October 17, 2007.

All data is in to estimate the new variable reset beginning in November for existing I-Bonds.

The CPI-U history for the six month reset period (Mar. 2007-Sep. 2007) is as follows:

Mar. CPI-U 205.352
Apr. CPI-U 206.686
May. CPI-U 207.949
Jun. CPI-U 208.352
Jul. CPI-U 208.299
Aug. CPI-U 207.917
Sep. CPI-U 208.49

The Sep. jump in CPI was large. This brings the new rates up from the trend we were seeing of a dismal reset.

My estimate for the new rates for existing bonds will be the following when their 6-month reset period arrives.

Base----Rate
1.0%----4.07%
1.1%----4.17%
1.2%----4.27%
1.3%----4.38%
1.4%----4.48%
1.6%----4.68%
2.0%----5.09%
3.0%----6.10%
3.3%----6.41%
3.4%----6.51%
3.6%----6.71%

Current I-Bonds are at a 1.3% base rate, which means if you buy them before the end of this month, you will get 3.74% followed by 4.38% at their next reset in 6 months.

If they leave the base rate at 1.3%, new Nov issue bonds would carry a 4.38% rate.

Check the Treasury Direct website www.treasurydirect.gov on October 1, 2007 for the actual new base rate.

I Bond rates, where are they headed

Posted on our Facebook Forum by Runner Twentysix September 19, 2007.

As of today, September 19 2007, we are now 5/6 of the way through the next reset period for I-bonds. For the second month in a row, there was a DROP in the CPI-U. The CPI-U history for the first 5 months of the reset period (Mar. 2007-Sep. 2007) is as follows:

Mar. CPI-U 205.352
Apr. CPI-U 206.686
May. CPI-U 207.949
Jun. CPI-U 208.352
Jul. CPI-U 208.299
Aug. CPI-U 207.917
Sep. CPI-U TBD (available mid Oct. 2007)

If the reset were today (which it is NOT since there are still one month to factor in, up or down) the new rates would be:

Base----Rate
1.0%----3.51%
1.1%----3.61%
1.2%----3.71%
1.3%----3.81%
1.4%----3.92%
1.6%----4.12%
2.0%----4.52%
3.0%----5.54%
3.3%----5.84%
3.4%----5.94%
3.6%----6.14%

Current I-Bonds for sale are at a 1.3% base rate, and current yield of 3.74% for the first 6-months. Their reset would then be 3.81%(+- the next one month CPI-U change).