THREAD IS CLOSED!!! Ask Rande 6000+ USE NEW THREAD

Top 102. May 18, 2000 6:11 AM

» Kirk - Hey Jack

Hey Jack
Futures are now up.
Guess they are not that useful for the long term and you should avoid looking at them until the morning so you can enjoy your sleep! 8)

When the NASDAQ can go down several hundred points and then reverse and end up several hundred points, IN THE SAME DAY, I really don't worry about the NASDAQ futures when they show a 50 point move in either direction the night before. I consider it noise.

-- posted by Kirk

I-Bond Yield is 7.49%

Top 103. May 18, 2000 9:15 AM

» JenL_2 - I-Bond Yield?

pj & Rande - Dewam posted this on May 1 on the "Bonds" thread:

.....Jen

-- posted by JenL_2

Top 104. May 18, 2000 12:36 PM

» pjstack - Thanks.

Thanks to Jen & Rande for the info and links. I re-checked, and the I Bonds really are paying 7.49%. Hey, if you really can cash them at most any bank, they're like interest bearing traveler's checks!

Thanks again.

Phil Stack.

-- posted by pjstack

Top 105. May 18, 2000 5:05 PM

» Rande - Sorry, was out all day and just got a chance to respond.

Sorry, was out all day and just got a chance to respond. Let me add a new three-letter acronym to the glossary with respect to the TIPS paying 7.49% -- NFW (no "freakin" way). Of course, I'd be willing to eat those three little letters if someone could show me a link or cite to an authoritative source. In the meantime....here's the coupon for the 4/15/28 TIPS (Treasury Inflation Protected Securities) as of last month:

3-5/8 pct due April 15, 2028

Have to believe that the "7.49%" some are seeing is not a coupon rate, but some sort of derived rate based on assumed future inflation. Would be great to get the source so we could analyze it.

-- posted by Rande

http://www.finpipe.com/tips.htm

Top 106. May 18, 2000 5:31 PM

» KLR - TIPS

TIPS work like this:

The interest rate remains fixed throughout the term of the security.

The principal is adjusted for inflation and the adjusted principal is paid at maturity.

Semiannual interest payments are based on the inflation-adjusted principal at the time the interest is paid.

The index for measuring inflation rate is the Consumer Price Index published monthly by the Bureau of Labor Statistics.

5-year and 10-year notes and 30-year bonds sold through a single-price auction method (same as all Treasury marketable securities auctions).

Inflation-indexed securities are sold in January, July and October.

Buy online or by phone through Buy Direct.

Multiples of $1,000 up to $5 million maximum.

Exempt from state and local taxes.

Interest is subject to federal income tax, as is any increase in accrued inflation compensation.

I think the rate being quoted includes some inflation factor but where it comes from I have no idea. It certainly sounds high to me in view of CPI figures....

-- posted by KLR

Top 107. May 18, 2000 5:40 PM

» KLR - Summary of Treasury Inflation-Indexed Securities

Summary of Treasury Inflation-Indexed Securities

The first auction of inflation-indexed securities, a 10-year note, was held in January 1997. The real interest rate resulting from that auction was 3.449%. Future 1997 issues will be auctioned quarterly in April, July, and October. The following is a summary of the key features of the new securities.

The inflation-indexed securities will be structured similarly to the Real Return Bonds issued by the Government of Canada. The real interest rate, which is set at auction, will remain fixed throughout the term of the security. Semiannual interest payments will be based on the inflation-adjusted principal at the time the interest is paid. (Example on opposite page.)

The principal amount of the security will be adjusted for inflation periodically, but the inflation-adjusted principal will not be paid until maturity. At maturity, the securities will be redeemed at the greater of their inflation-adjusted principal or the par amount at original issue, if there is no inflation or if prices actually fall during the next ten years.

The index for measuring the inflation rate will be the non-seasonally adjusted U.S. City Average All Items Consumer Price Index for All Urban Consumers (CPI-U), published monthly by the Bureau of Labor Statistics (BLS).

If, while an inflation-indexed security is outstanding, the CPI is (1) discontinued, or (2) in the judgment of the Secretary, fundamentally altered in a manner materially adverse to the interests of an investor in the security, or (3) in the judgment of the Secretary, altered by legislation or executive order in a manner materially adverse to the interests of an investor in the security, Treasury, after consulting with the BLS, will substitute an appropriate alternative index.

These securities are exempt from state and local taxes but subject to federal income taxation. Generally, the amount of any inflation adjustment will be taxable as income within that year. (For additional tax information see IRS Notice 96-51)

The securities will be eligible for stripping into their principal and interest components in Treasury's Separate Trading of Registered Interest and Principal of Securities (STRIPS) program.

Illustration of Indexing

Value of Principal Calculation:

Par Amount x Index Ratio = Indexed Value
Example: $10,000 x 1.00820 = $10,082.00
Par Amount = $10,000
Index Ratio = 1.00820
(Hypothetical 3-month adjustment, utilizing CPI on 3-month lag)
Interest Payment Calculation:

Par Amount x Index Ratio x (Interest Rate/2) = Interest Payment
Example: $10,000 x 1.00820 x .03/2 = $151.23
Par Amount = $10,000
Index Ratio = 1.00820
Real Interest Rate = 3%

(3-month adjustment)
Fixed upon auction results
Semiannual Interest Rate = (Interest Rate/2)

-- posted by KLR

Top 108. May 18, 2000 5:54 PM

» Rande - KLR -- Thanks for the additional info on the TIPS.

KLR -- Thanks for the additional info on the TIPS. Between that, the Treasury link I posted and Jen's link, we should have everything we ever needed to know. Would still be nice to see the source of the 7.49% rate. Again, must be some kind of derived yield-to-maturity based on principal adjustment linked to an assumed rate of inflation.

-- posted by Rande

Top 109. May 18, 2000 8:44 PM

» pjstack - I-Bond interest rate.

I'm not very good at posting links, but here is the address: http://www.savingsbonds.gov

These aren't TIPS (I don't think), they are Series I savings bonds. Yes,they are inflation adjusted. They look like those lil'old IBM card sized EE bonds. Please go to the site. The US Gov. says they're paying 7.49%, and when did the govt.ever lie to us? ;-)

Thanks. Phil Stack.

-- posted by pjstack