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"If the US enters a period of deflation, would I-Bonds be a reasonable vehicle to park our money?"

No!


"I Bonds even protect you from the effects of deflation"

- http://www.publicdebt.treas.gov/sav/sbifaq.htm

So who's right, Lokicious or the US Treasury? It depends on how you look at the question.

If I own a T-Bond paying 5%, and you own an I-Bond with a similar yield, and inflation drops to -2%, The I-Bond is going to net you right around nothing, while the T-Bond will still be paying 5%. In this case the T-Bond offered better deflation protection; Lok's point.

On the other hand, let's say inflation is -10% and you want to make a fixed income investment. A bond (newly purchased), stock, or real estate investment might return -5%, while an I-Bond will never yield < 0%. This is what the treasury means when it says I-Bonds can protect you against inflation.

Nick
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