THREAD IS CLOSED!!! Ask Rande 6000+ USE NEW THREAD
- dewam
- pjstack
- pjstack
- JenL_2
- Rande
- Kirk
- Rande
- Mark_J
- Rande
- Kirk
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» dewam - TIPS do not = I-Bonds
This link should answer most questions. This site has extensive discussion of both TIPS and I-Bonds.http://socialize.morningstar.com/x.xs/XB...
Here is some info from the U.S. Treasury
Summary of Marketable Treasury Inflation-Indexed Securities
The Treasury Department published final rules on January 6, 1997, which sets out the terms and conditions for Marketable
Inflation-Indexed Securities. The final rules adopted, without substantive change, the proposed rules that were published for comment on September 27, 1996. Eight comment letters were received in response to the proposal.
The following is a summary of the key provisions and features of these securities:
The inflation-indexed securities are structured similarly to the Real Return Bonds issued by the Government of Canada.
The interest rate, which is set at auction, remains fixed throughout the term of the security.
The principal amount of the security is adjusted for inflation, but the inflation-adjusted principal will not be paid until maturity.
Semiannual interest payments are based on the inflation-adjusted principal at the time the interest is paid.
The index for measuring the inflation rate is 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).
The auction process uses a single-price auction method that is the same as that currently used for all of Treasury's marketable securities auctions.
The securities are eligible for stripping into their principal and interest components in Treasury's Separate Trading of Registered Interest and Principal of Securities (STRIPS) program.
At maturity, the securities will be redeemed at the greater of their inflation-adjusted principal or par amount at original issue.
If, while an inflation-indexed security is outstanding, the CPI is (1) discontinued, (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.
Regulations addressing the tax treatment PDF format, (file size-59KB, file uploaded-01/08/97) of inflation-indexed securities were published by the IRS PDF format, on January 6, 1997. Generally, the interest payments are taxable when received, which is consistent withthe tax treatment of other Treasury securities. The inflation adjustments to the principal are taxable in the year in which such adjustment occur even though the inflation adjustments will not be paid until maturity.
FEATURES OF I BONDS
1. What are I Bonds?
I Bonds are a new type of bond designed for investors seeking to protect the purchasing power of their investment and earn a guaranteed real rate of return. I Bonds are an accrual-type security--meaning interest is added to the bond monthly and paid when the bond is cashed. I Bonds are sold at face value--you pay $50 for a $50 bond--and they grow in value with inflation-indexed earnings for up to 30 years.
2. Why is the Treasury offering the I Bond and will it replace Series EE bonds?
The Treasury is offering the I Bond to encourage more Americans to save for the future. We are offering investors a bond with a fixed rate combined with semiannual inflation adjustments that will help protect purchasing power.
The I Bond will not replace Series EE bonds; both will be on sale to give investors a choice.
3. How is the earnings rate of an I Bond determined?
The earnings rate of an I Bond is a combination of two separate rates: a fixed rate of return and a variable semiannual inflation rate. The fixed rate remains the same throughout the life of the I Bond, while the semiannual inflation rate can vary every six months.
The fixed rate of return is announced by the Treasury Department each May and November. The fixed rate of return announced in May of a given year is the same over the entire life of the I Bonds you purchase between May 1 and October 31 of that year. Likewise, the fixed rate of return announced in November of a given year applies to the
entire life of I Bonds you purchase between November 1 and April 30 of the following year.
The semiannual inflation rate is also announced each May and November by the Treasury Department. The semiannual inflation rate is based on changes in the Consumer Price Index for all Urban consumers (CPI-U), which is reported by the Bureau of Labor Statistics. The semiannual inflation rate announced in May is a measure of inflation over the preceding October through March; the inflation rate announced in November is a measure of
inflation over the preceding April through September.
The semiannual inflation rate is combined with the fixed rate of an I Bond to determine the I Bond's earnings rate for the next six months.
YES FREAKIN WAY The rate of return is 7.49%, but only for a 6-month period, when the the inflation adjusted portion of the return will be "adjusted" again. Den
-- posted by dewam
» pjstack - Thank you, Den.
Thank you very much!I have to type fast because I'm on AOL and the @#!**&^ son's of (*&^#($@!"s have kicked me off-line twice already in the midst of what was probably a long-winded reply to your post!
Thanks! I appreciate the effort you went to.
Phil Stack.
-- posted by pjstack
» pjstack - Den, I-Bonds again!
I bought some a little while ago. They have a feature that allows you to designate a beneficiary ("Pay On Death" registration), which is sorta neat.BUT, as you know, if you have POD (sometimes called Transfer On Death (TOD)) in other securities (stocks, for instance), your beneficiary picks up the "stepped-up-value" of your securities on your death. They don't pay taxes on the appreciated value of your securities.
Do you think this will also apply to I Series savings bonds? (I doubt it, but who knows?)
I will ask the IRS site, but as you know, they only have a 50% rate of correct answers, even though you can't hold them accountable if they give you the wrong answer! (What a country, eh?)
I have no idea how they would keep account of the arithmetic involved, but I'll let you know what they say.
Thanks again for all the research you shared.
Phil Stack.
-- posted by pjstack
» JenL_2 - Gee Thanks Dewam...
..for setting us straight on the difference between TIPS and IBonds, and here I mistakingly thought they were the same animal.
Now we have something else to worry about....
<img src="http://www.geocities.com/WallStreet/Dist..." width=88 height=149><img src="http://www.geocities.com/WallStreet/Dist..." width=88 height=149>
It’s Double Witching Friday!
…..Jen
-- posted by JenL_2
» Rande - Well, at least the mystery of the 7.
Well, at least the mystery of the 7.49 rate is solved -- 3.6% coupon plus annualized inflation rate for the last six months. Not bad if you expect that kind of inflation to last.Double Witch is starting off on a down note with overseas markets and U.S. futures taking a header. Buckle up.
-- posted by Rande
» Rande - Kirk,
Kirk,Yes. The bank stocks as a group are selling at historically low multiples relative to the market as a whole. There are other areas of the market that are reasonably priced as well. Not at all like Japan in the late eighties where virtually all stocks were excessively valued. Still, would not recommend any big sector bets, just a caution for the next time we hear someone carping about how "the market" is overvalued.
-- posted by Rande
» Mark_J - What usually happens to me is that I hit the department store, a
What usually happens to me is that I hit the department store, and buy a great pair of slacks from the 20%-off sale rack. But then, then next time I visit the department store, those same pair of slacks are on the 40%-off sale rack!Just my luck, I suppose. Timing the department store sales may be just as difficult as timing the market...
-- posted by Mark_J
» Rande - Mark -- DCA into those slacks?
Mark -- DCA into those slacks?BTW -- Speaking of bank stocks, here's an analyst who, like Abby Cohen, sees some value in the financials. Interestingly, he also says he thinks the Fed may do another 75 bp. Still looking favorably on the group, though. Again, not an idea to go out and load up on back stocks -- just a reminder that the Total Market includes some bargains. For what it's worth:
-- posted by Rande
» Kirk - Yes, I agree
I was amazed to see how Intel was the 2nd largest company in the US. I was also amazed at the multiple GE was getting for 12.5% revenue growth the last 5 yrs.On a PEG basis, GE is selling at a 35% premium to the S&P500 and it is loaded with stuff what will get slammed when growth slows like household appliances. Nobody buys a new Fridge to make their company more competitive in the new economy. Not too many jet engines will be ordered either when people take fewer and shorter distance vacations.
Maybe some parts of the market are pretty absurd on a valuation basis? It sure makes a case for the Wilshire5000... just integrate out the absurditities rather than chase the undervalued sectors and try to match that for the whims of investors.
-- posted by Kirk
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