Recommendations: 5
Posted at: http://www.publicdebt.treas.gov/sav/sav.htm
As expected, the new EE Bond rate is 3.25%.
Somewhat of a surprise to me, the fixed rate for I Bond wasn't reduced; it's still pegged at 1.0%. Perhaps this marks the bottom of the fixed rate figure? As for the inflation component, that came in at 2.66% (I had calculated it at 2.67%  oh, well). The total annualized yield comes to 3.67% for the 6month period.
Ken

Recommendations: 1
Ken,
Here's what 5year TIPS have traded at over 6 months (October not listed),
http://www.federalreserve.gov/releases/h15/data/m/tci5y.txt
Guessing October at around.9% fixed rate, a lot less than the average over previous 5 months, I get 1.193% as average for last 6 months. That comes out to 1.07% at 90% of 5year TIPS. They also need to reduce something from inflation component, though I don't know how that would be calculated, to do the equivalent of 5year EE bonds.
Or maybe they are simply using the EE rate and subtracting 90% of how much on the average 5year T bills have traded above 5year TIPS, which (using my approximation) is about 90% of 2.5%, which would be 2.25%, which gives a fixed rate of 1%, with EE rate at 3.25%.
Or maybe they throw pieces of paper down the stairs, which has always been my preferred method for determining grades.

Recommendations: 0
As for the inflation component, that came in at 2.66% (I had calculated it at 2.67%  oh, well).
Shame on you! ;)
Ken, if you have a TD account can you tell me if they ever update the value of the bonds in the TD account, or does one have to calculate the value of each one yourself using the posted earnings report? (or on a spreadsheet, like I've been doing?)
I asked this same question here, but no one seems to know...
http://boards.fool.com/Message.asp?mid=21533619
Thanks, 2old

Recommendations: 0
Loki,
Warning: Long, boring post. Conclusion at bottom.
Here's what 5year TIPS have traded at over 6 months (October not listed),
Thanks for that link. I had previously looked at the Fred II database, and the closest thing I could find was the monthly data for a 10year TIPS that was approximately 5 years from maturity: http://research.stlouisfed.org/fred2/data/TP10J09.txt or http://research.stlouisfed.org/fred2/data/TP10J10.txt
I suppose the Treasury uses a blend of these 2 issues to determine the values in the constant maturity series you provided. Since that data begins with Jan 2003, we can look back only as far as the I Bonds issued in Nov 2003. :( Here's what I calculated:
Nov 2003 If the period used was 05/03  10/03, the average yield was 1.23%. If the period was 04/03  09/03, the average yield was 1.25%. Too close to distinguish which period might be correct. 90% of either value is 1.1% (rounded to the nearest tenth). The fixed rate of I Bonds issued in Nov 2003 was ... 1.1%.
May 2004 11/03  04/04: 0.998%. 10/03  03/04: 1.03%. Unfortunately, taking 90% of these values ruins things. 90% of the former period gives 0.90%, the latter gives 0.93%. Neither equals the fixed rate of May 2004 bonds (1.0%). So this method seems close, but not entirely right.
Or maybe they are simply using the EE rate and subtracting 90% of how much on the average 5year T bills have traded above 5year TIPS
An interesting and intelligent idea. Looking back to Nov 2003, 90% of the difference between the average monthly 5year TIPS and 5year T Bills rates were 1.50% and 1.44% (again, depending on the exact period used). The EE rate for Nov 2003 was 2.61%. That gives hypothetical rates of 1.1 and 1.2 (rounding to the nearest tenth). Remember the answer we want is 1.1, so the former value is again promising. Let's look at May 2004:
90% of the difference gives 1.94% and 1.88%. The EE rate for May 2004 was 2.84%. Rounding to the nearest tenth, that gives 0.9% and 1.0%. Unfortunately, it's the second period (OctMar) that's correct, whereas the former period (AprOct) was the correct one for Nov 2003.
Which means that, unless my calculations are wrong (ALWAYS a distinct possibility), your last hypothesis is the only one I can't disprove:
Or maybe they throw pieces of paper down the stairs
Conclusion: Both of your suggestions are very good ones, and they both come close to explaining the established rates  but, unfortunately, not exactly right.
I wonder if anyone has ever simply asked the Treasury how they set the rate? I know I haven't.
Ken

Recommendations: 0
2old,
Ken, if you have a TD account can you tell me if they ever update the value of the bonds in the TD account, or does one have to calculate the value of each one yourself using the posted earnings report?
I assume you're still talking about Savings Bonds? If so, I hold all of them as paper bonds, so I can't answer your question. Perhaps someone else here can.
Ken

Recommendations: 0
Or maybe they throw pieces of paper down the stairs, which has always been my preferred method for determining grades.
I still prefer the dart board when determining grades. ;)
And thanks to everyone on this thread for the great info RE: savings bonds.
jmc, has bad aim

Recommendations: 0
"I wonder if anyone has ever simply asked the Treasury how they set the rate? I know I haven't."
Boring!!!
The only reason for trying to know in advance, other than play, is for those trying to decide whether to buy before or after a changeover date, and I think we've now gotten a couple of ways of getting close enough for that purpose.

Recommendations: 0
TD posts your interest every month.
Click on "Current Holdings".
GG


