Picking up Nickels

Thursday, April 15, 2010

March CPI-U numbers released: April 2010 issue I Bonds worth considering

The U.S. Bureau of Labor Statistics released the March 2010 Consumer Price Index (CPI-U) inflation data yesterday morning, which increased by 0.41% month over month.

As I have mentioned before, now (along with the release of the September CPI-U) 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 April 2010 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 September 2009 (215.969) and March 2010 (217.631) (courtesy of inflationdata.com), we can calculate the variable rate for the second 6 month period for April 2010 issue I Bonds:

That means these bonds would earn a rate of 3.36% (using 0.30% fixed & 3.06 variable) for the first 6 months and 1.84% (using 0.30% fixed & 1.54% variable) for the second 6 months. Based on this, I believe I Bonds are once again a competitive investment when compared to something like the 12 month CD @ 2.00% APY currently being offered by Southeast Financial FCU.

I believe that April 2010 I Bonds are a pretty compelling buy during the low rate period we're currently in. I plan on buying $10,000 ($5k paper & $5k electronic at treasurydirect.gov) worth of April 2010 I Bonds myself and will reevaluate what to do with them in April 2011. Considering that it is believed that the FOMC could keep short term interest rates low through 2011, I may just hang onto these for a while..


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