March CPI-U numbers released: April 2009 issue I Bonds worth considering

The U.S. Bureau of Labor Statistics released the March 2009 Consumer Price Index (CPI-U) inflation data this morning, which increased by 0.24% since last 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 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 September 2008 (218.783) and March 2009 (212.709) (courtesy of inflationdata.com), we can calculate the variable rate for the second 6 month period for April 2009 issue I Bonds:


Wow, I believe that this is the first time that I Bonds have had a negative variable portion since they were introduced in 1998. That means these bonds would earn a rate of 5.64% (using 0.70% fixed & 4.94 variable) for the first 6 months and 0% (using 0.70% fixed & -5.56% 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 11 month CD @ 3.00% APY currently being offered by Connexus Credit Union.

I believe that April 2009 I Bonds are a reasonable buy at this time even with a 0% composite rate for the second six month period. Please note that even with a negative composite rate, I Bonds do not lose money even during periods of severe deflation. The earnings rate can't go below zero and the redemption value of your I Bonds can't decline (see treasurydirect.gov for more info). I will be buying $5000 worth of April 2009 I Bonds myself and will reevaluate what to do with them in April 2010. If speculation by some that current monetary policy will start to create a high inflationary environment by then, I will probably hang on to them. If they're not an attractive deal at that time, I will redeem them and essentially pay no penalty by forfeiting three months worth of 0% interest.

April 2009 Financial Asset Roundup

Here are my current financial assets as of the market close on April 9th, 2009:

Asset	Mar 2009	Apr 2009	Change
Checking	579	505	-74
Money Market	20,233	14,763	-5,470
Savings Bonds	15,198	15,257	59
Treasury Bills	0	0	0
CDs	118,212	128,694	10,482
Brokerage	67,692	80,875	13,183
401k	51,921	61,473	9,552
Roth IRA	22,417	25,843	3,426
SEP IRA	134,257	153,482	19,225
529 Savings	27,781	31,923	4,142
Total Assets	$458,290	$512,815	$54,525
			(11.90%)

We've had a nice bounce since the last update with the S&P 500 index up 19.03% since the last update:

(chart courtesy of msn.com)

Unemployment is still rising and is now up to 8.5%. Hopefully the stock market rally over the past few weeks is indicating that we have hit a bottom, although earnings announcements this week could bring us back to reality.

Moneywise, I have a one year Patelco CD @ 4.07% APY CD maturing at the end of the month and opened a one year Bank of America CD @ 2.65% APY in anticipation of not having a decent place to put that cash in a couple of weeks. I'm also looking to put $5000 into electronic I Bonds later this month, which should have approximately a 3% tax equivalent return over the next year (a 5.64% rate for the first six months and likely 0% over the next 6 months with a negative inflation component when the March 2009 CPU-I numbers come out on Wednesday).

Overall, things have been going pretty well even though I haven't been blogging much lately. My 2008 personal and business tax returns are now officially done! I've also finalized a contract extension with my largest client, so it's looking like I'll continue to bring in consulting revenue throughout 2009 and continue with my typical saving, investing, and spending habits. With a little luck I'll be in great shape if and when some economic recovery starts to happen in 2010.