Picking up Nickels

Thursday, October 15, 2009

September CPI-U numbers released: Pass on October 2009 I Bonds

The U.S. Bureau of Labor Statistics released the September 2009 Consumer Price Index (CPI-U) inflation data this morning, which increased by 0.06% last month.

As I have mentioned many times before, now is one of the best times to consider purchasing I Bonds. The reason for this is that we now know what the rate of return for October 2009 I Bonds will be for both the first and second six month periods, which is important since I Bonds must be held for 12 months before they can be redeemed.

Using the CPI-U data from March 2009 (212.709) and September 2009 (215.969) (courtesy of inflationdata.com), we can calculate the variable rate for the second 6 month period for October 2009 issue I Bonds:



That would mean these bonds would earn a rate of 0% (using 0.10% fixed & -5.56% variable) for the first 6 months and 3.17% (combined 0.10% fixed & 3.07% variable) for the second 6 months. With a pathetic 0% composite rate and 0.10% fixed portion, this is not an attractive investment when compared to the 1 year CD @ 2.25% APY currently being offered by ING Direct.

As expected, October 2009 I Bonds are not worth considering at this time. It is worth re-evaluating I Bonds in late November 2009 though, since it is possible that even moderate increases in inflation will make I Bonds more attractive than one year CDs with 2% yields. I personally will be waiting until late April 2010 before considering an I Bond purchase.

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