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astrosgp said:   Even if the fixed component is as high as 0.8% (not likely that high, but they may bump it up to 0.1% or 0.2%), the new I-Bond rate will still be 0%, correct? I think it's the overall rate that never goes negative, but the variable portion of the formula can.
  Correct

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Yeah, the variable portion would be -1.6% annualized, so even if your IBond has a fixed 0.1%, 0.2%, etc (up to 1.6% fixed), your total earnings for the coming 6 months would be 0%. It'd take a >1.6% fixed rate IBond (from October 2002 or earlier!!) to earn positive interest in the coming period.

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I told you guys that this was going to happen but you guys got upset with me,thumb me down and reported some of my answers. Due to some of you guys taking things personal, All my answers have to be approved by moderator due to some of you guys reporting my comments. You guys think y'all know it all. I told you guys where to place your money but you guys knew it all and didn't want to listen. Report me again. I am within my 30s and I am a millionaire so I don't care

Now isn't the time to purchase I-bonds Most likely, you will earn a fixed rate of 0.0% and an inflation-adjusted rate of 0.0% for six months. There really would be no reason to buy I Bonds under that scenario.

It’s possible the Treasury could surprise us and add a small fixed rate – say 0.1% – to make buying I Bonds a little more appealing. I’d say that is unlikely, but if it happened, I would be highly likely to buy I Bonds then, because the fixed rate carries with the investment for 30 years but don’t get your hopes up. The last time the inflation-rate went negative, in May 2009, the Treasury dropped the fixed rate from 0.7% to 0.1%.)

Buying an I Bond after Nov. 1 looks like the most appealing option. The fixed rate could rise above 0.0%. The inflation-adjusted rate could rise into a positive number. You could earn something more than 0.0% for six months.

Waiting makes the most sense.

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Basically, if you buy now, you are going to get 0.74% for the year (1.48% for the first six months followed by 0% for the next six months). You can beat that with Ally, Alliant, or many other online banks, even with state tax drag. I'll hold my money until the end of November and drop $10,000 then, although I did dump my tax refund into I Bonds as I normally do.

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Yes, but smartypig reduced theirs from 1% to .75%. Do we know Ally won't do the same soon?

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Had some ibonds from May of 2011 when inflation was 2.3%. Seeing the new rate is down to 0% I'm inclined to redeem. Any thoughts on the best time to redeem? I'm deciding between either beginning of May or August (3 month penalty at .74% vs 0%)

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CNCL said:   Had some ibonds from May of 2011 when inflation was 2.3%. Seeing the new rate is down to 0% I'm inclined to redeem. Any thoughts on the best time to redeem? I'm deciding between either beginning of May or August (3 month penalty at .74% vs 0%)
  If you're going to redeem them, I'd wait until the current 1.48% composite rate ended and do it on the first business day of month #3 at 0%.

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I thought about that as well except I realized I can easily get ~5% if I redeem $5000 and put it into one of those prepaid savings accounts...just wasn't sure if there's any downside that I'm not thinking about

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CNCL said:   Had some ibonds from May of 2011 when inflation was 2.3%. Seeing the new rate is down to 0% I'm inclined to redeem. Any thoughts on the best time to redeem? I'm deciding between either beginning of May or August (3 month penalty at .74% vs 0%)
  I would wait until the bonds become 5 years old.  That's when the 3-month penalty expires, so you'll effectively get four months of interest all combined into one, assuming the variable component recovers by then (which I imagine it would).

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I redeemed more than half of my I-bond holdings (issued in 12/2002 with a 1.6% fixed rate, 1 bond had a 12/2001 issue and a 2% fixed rate) the last time the inflation rate went negative in May-Nov 2009. Including the 6 months of no interest in 2009, the 2002 bonds would have grown 3.68% annually and the 2001 bond at 4.15%.

If using the I-bonds as a cash equivalent, redemption would have been an bad strategy. Check your fixed rates before doing anything.

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astrosgp said:   
CNCL said:   Had some ibonds from May of 2011 when inflation was 2.3%. Seeing the new rate is down to 0% I'm inclined to redeem. Any thoughts on the best time to redeem? I'm deciding between either beginning of May or August (3 month penalty at .74% vs 0%)
  I would wait until the bonds become 5 years old.  That's when the 3-month penalty expires, so you'll effectively get four months of interest all combined into one, assuming the variable component recovers by then (which I imagine it would).

  A 3 month penalty of 0% interest is 0.

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Even though the 3-month interest penalty at 0% is zero, you'd still be giving up the option to recover the benefit of the interest penalty going away nine months later at a potentially higher rate. For example, if CPI-U goes up 2% between March and September (not unreasonable if oil prices recover over the summer), the bonds will earn 4%. But since you will effectively get 6 months of that interest in 3 months, it would effectively be closer to 8%. Even weighting that with 6 months of 0% would still yield about 2.5% by holding an additional 9 months.

I guess the better answer is it depends what CPI-U does between now and August. If CPI-U remains flat as of August and you're looking to sell, then yes go ahead and pay the 3-month penalty at 0%. But if there is any material inflation, I'd keep them until at least May 2016.

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astrosgp said:   Even though the 3-month interest penalty at 0% is zero, you'd still be giving up the option to recover the benefit of the interest penalty going away nine months later at a potentially higher rate. For example, if CPI-U goes up 2% between March and September (not unreasonable if oil prices recover over the summer), the bonds will earn 4%. But since you will effectively get 6 months of that interest in 3 months, it would effectively be closer to 8%. Even weighting that with 6 months of 0% would still yield about 2.5% by holding an additional 9 months.

I guess the better answer is it depends what CPI-U does between now and August. If CPI-U remains flat as of August and you're looking to sell, then yes go ahead and pay the 3-month penalty at 0%. But if there is any material inflation, I'd keep them until at least May 2016.

  
Well I guess if the inflation were to bounce back up either later this year or next year I will always have the option to buy again, in which case obviously I'm in for another 3-month penalty if I were to redeem early before 5 years...but yeah you're right it depends on how CPI-U plays out. That said, I think I'll probably just suck it up the penalty, redeem on 1st of May and put the $5000 in either Mango or brinks 

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astrosgp said:   Even though the 3-month interest penalty at 0% is zero, you'd still be giving up the option to recover the benefit of the interest penalty going away nine months later at a potentially higher rate. For example, if CPI-U goes up 2% between March and September (not unreasonable if oil prices recover over the summer), the bonds will earn 4%. But since you will effectively get 6 months of that interest in 3 months, it would effectively be closer to 8%. Even weighting that with 6 months of 0% would still yield about 2.5% by holding an additional 9 months.

I guess the better answer is it depends what CPI-U does between now and August. If CPI-U remains flat as of August and you're looking to sell, then yes go ahead and pay the 3-month penalty at 0%. But if there is any material inflation, I'd keep them until at least May 2016.

  astrosqp,
You forgot we are starting in a -0.8% hole, so if it would go up 2% in the next 6 months it would be 1.2% net times 2 for 2.4% , if I understand it correctly.I know you know this from your post of April 17.
I have I-Bonds bought 9/2011, 2/2012 and 2/2013 I am considering selling late this year after 3 months of 0% interest. I will see data from 4 or 5 months CPI-U towards the next rate adjustment to help me in  my decision.If it is still zero or close to zero at that time I will sell. I would recommend anyone buying I-Bonds in the future to buy them late in the 6 month cycle, then you have the most info going forward to help decide when to sell.Also, I just opened a online savings account last week at Ally Bank to give me a 0.99% home to park it if needed.


 

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Nope...only 6 months of inflation counts toward the semi-annual rate, which is multiplied by 2. The previous -0.8% is not considered at all in the next variable rate reset. It actually would have helped if CPI-U bottomed out much lower in March, as the Sep. - Mar. rate would be floored at 0% but the Mar. - Sep. rate would have more room to go up.

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The current dip in the CPI-U was primarily driven by crude oil prices being cut in half.  I believe that I Bonds bought in November 2015 will likely get a boost from this due to the lowered CPI-U number we have now, although it probably won't be as dramatic as the rate increase driven by Hurricane Katrina ten years ago.

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astrosgp said:   Nope...only 6 months of inflation counts toward the semi-annual rate, which is multiplied by 2. The previous -0.8% is not considered at all in the next variable rate reset. It actually would have helped if CPI-U bottomed out much lower in March, as the Sep. - Mar. rate would be floored at 0% but the Mar. - Sep. rate would have more room to go up.
  astrosqp,
I think you are right and I was wrong. It is the Social Security annual increase that has to climb out of the negative inflation hole, as it did in 2009 and 2010 with 0% inflation increases. I've been doing a lot of calculations the last year on Social Security and got the two mixed up. I'm glad you were right, more $$ for me!(maybe)

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astrosgp said:   Nope...only 6 months of inflation counts toward the semi-annual rate, which is multiplied by 2. The previous -0.8% is not considered at all in the next variable rate reset. It actually would have helped if CPI-U bottomed out much lower in March, as the Sep. - Mar. rate would be floored at 0% but the Mar. - Sep. rate would have more room to go up.
  The way I look at it is that I bond holders will be getting a 1.6% bonus this year since the -0.8% will be wiped out.

I bonds rates  are calculated by multiplying the inflation rate by 2 so -0.8 is -1.6%.

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I have some i-bonds that were issued on 5/1/2011 and 4/1/2012. They both have 0% fixed rate. I checked on the treasurydirect site that they are currently earning 1.48%. Trying to make sense of the upcoming 0% rate and when would be the best time to redeem. Could someone help sanity check the following? Thanks.

So if I understand right, for my i-bonds issued on 5/1/2011, they will earn 0% from 5/1/2015 to 10/31/2015. So it would be best to redeem these on 7/1/2015 as I will only lose 3 months of the 0% interest for the redemption penalty? (Always best to redeem at beginning of month as interest is earned for the month on the first day of the month.)

For my i-bonds issues on 4/1/2012, they will earn 1.48% interest from 4/1/2015 to 9/30/2015. Then afterwards, they will earn 0% interest from 10/1/2015 to 3/31/2016. So it would be best to redeem these on 12/1/2015 as the penalty will only be on the 3 months of 0%?

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stormdog123 said:   
astrosgp said:   Nope...only 6 months of inflation counts toward the semi-annual rate, which is multiplied by 2. The previous -0.8% is not considered at all in the next variable rate reset. It actually would have helped if CPI-U bottomed out much lower in March, as the Sep. - Mar. rate would be floored at 0% but the Mar. - Sep. rate would have more room to go up.
  The way I look at it is that I bond holders will be getting a 1.6% bonus this year since the -0.8% will be wiped out.

I bonds rates  are calculated by multiplying the inflation rate by 2 so -0.8 is -1.6%.

  I'll be more than happy to borrow money from you at 0% interest if you'd like an additional "bonus"

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CNCL said:   Had some ibonds from May of 2011 when inflation was 2.3%. Seeing the new rate is down to 0% I'm inclined to redeem. Any thoughts on the best time to redeem? I'm deciding between either beginning of May or August (3 month penalty at .74% vs 0%)
  
I also have some i-bonds issues in May 2011. But if you were to redeem in early May next month, wouldn't you be losing 3 months of the current 1.48% interest your i-bonds are currently earning? Not sure why you're saying it would be a 3 month penalty at 0.74%. And couldn't you redeem in early July to get the 3 month 0% penalty instead of in August?

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budster said:   
CNCL said:   Had some ibonds from May of 2011 when inflation was 2.3%. Seeing the new rate is down to 0% I'm inclined to redeem. Any thoughts on the best time to redeem? I'm deciding between either beginning of May or August (3 month penalty at .74% vs 0%)
  
I also have some i-bonds issues in May 2011. But if you were to redeem in early May next month, wouldn't you be losing 3 months of the current 1.48% interest your i-bonds are currently earning? Not sure why you're saying it would be a 3 month penalty at 0.74%. And couldn't you redeem in early July to get the 3 month 0% penalty instead of in August?

  I was referring to the inflation rate but you are correct that I would be penalized at the composite rate of 1.48% if I were to redeem early. The main reason I thought about doing this is the option of parking up to $5000 per account with any of the prepaid cards with an attached savings account (mango, brinks etc) and earn 5%+

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The fixed rate has been announced as 0.00%, so there is absolutely zero reason to buy iBonds between now and October.

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Fiscal Service Announces New Savings Bonds Rates, Series I to Earn 0.00%, Series EE to Earn 0.30%

  • I Bond Earnings Rate of 0.00% includes a Fixed Rate of 0.00%
    The earnings rate for Series I Savings Bonds is a combination of a fixed rate, which applies for the 30-year life of the bond, and the semiannual inflation rate.  The 0.00% earnings rate for I bonds bought from May 2015 through October 2015 applies for the first six months after the issue date.  The earnings rate combines a 0.00% fixed rate of return with the -1.60% annualized rate of inflation as measured by the Consumer Price Index for all Urban Consumers (CPI-U).  The CPI-U decreased from 238.031 in September 2014 to 236.119 in March 2015, a six-month change of -0.80%. When the inflation rate is less than zero, the earnings rate will be less than the fixed rate but never less than zero.

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astrosgp said:   The fixed rate has been announced as 0.00%, so there is absolutely zero reason to buy iBonds between now and October.
  so I can basically cash out my 3yr old I-bonds in Aug w/o penalty now?
(redemption before 5yrs = 3month interest penalty)

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Correct.

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The whole premise of I-Bonds is a bit ridiculous. The idea is that you need to buy the bonds from the government in order to protect yourself from inflation.

The conflict of interest here is basically that you're trusting the government to protect you from a problem that they created. Inflation is ultimately created by the government increasing the supply of money... if they cared about protecting citizens from inflation then they wouldn't increase the money supply to finance their spending in the first place.

There is huge moral hazard for the government to create inflation but not accurately report it.

Enjoy your 0% yielding assets.

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If your bond was issued in... Your bond will get the 0% inflation rate on...
January July 1
February August 1
March September 1
April October 1
May May 1
June June 1
July July 1
August August 1
September September 1
October October 1
November May 1
December June 1


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mapen said:   
If you bought your bond in... Your bond will get the 0% inflation rate on...
January July 1
February August 1
March September 1
April October 1
May May 1
June June 1
July July 1
August August 1
September September 1
October October 1
November May 1
December June 1


  bought them  10/1/11 and 4/1/12.

so If I cash both of them on 1/1/16, I pay $0 for the 3 month interest penalty for early withdraw?

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yurgreat said:     bought them  10/1/11 and 4/1/12.

so If I cash both of them on 1/1/16, I pay $0 for the 3 month interest penalty for early withdraw?

Yes,

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brettdoyle said:   The whole premise of I-Bonds is a bit ridiculous. The idea is that you need to buy the bonds from the government in order to protect yourself from inflation.

The conflict of interest here is basically that you're trusting the government to protect you from a problem that they created. Inflation is ultimately created by the government increasing the supply of money... if they cared about protecting citizens from inflation then they wouldn't increase the money supply to finance their spending in the first place.

There is huge moral hazard for the government to create inflation but not accurately report it.

Enjoy your 0% yielding assets.

Well, it wasn't always the case, was it?
If you're old enough to remember 20th Century, I-Bonds and even E-bonds were legitimate saving vehicles for the middle class.

However, during the last 15 years Wall street and government had decided we shouldn't have it...

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(chart removed for edit)

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I am still holding I bonds from 2001 w/ fixed rates of 3% and 3.4% -- unfortunately the inflation rate is not zero but the full -1.6%, reducing my yield to 1.4%.  Still worth holding, but it's not pretty to look at, after years of yields of 4% to 6% or more.

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mapen, I think your redemption months are one month off. For example, if you bought in May (either May 1st or May 31st) you start getting paid interest on June 1st (or September 1st when the 3-month penalty expires). Therefore, your last interest payment before 0% would be either May 1 or August 1 (not April 1/July 1).

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astrosgp said:   mapen, I think your redemption months are one month off. For example, if you bought in May (either May 1st or May 31st) you start getting paid interest on June 1st (or September 1st when the 3-month penalty expires). Therefore, your last interest payment before 0% would be either May 1 or August 1 (not April 1/July 1).
 

Hi astrosgp, thanks for the reply. I based my dates on the widely discussed point that if you redeem a bond on the first day of the month, you will get interest credit for that entire month. Is that not correct?

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That is kind of correct. If you buy or sell a bond anytime during a month, the purchase/sale gets recorded as occurring on the first of the month. So it makes sense to buy at the end of a month and sell at the beginning of a month. You don't get an extra month of interest, you just have to tie up your money for about a month less to get it. Lets use the example of a bond purchased on May 31, 2014. You will get interest on the following schedule:

06/01/14: $0 (3-month interest penalty)
07/01/14: $0 (3-month interest penalty)
08/01/14: $0 (3-month interest penalty)
09/01/14: 1.94% (first month of interest, now past the 3-month penalty)
10/01/14: 1.94%
11/01/14: 1.94%
12/01/14: 1.94%
01/01/15: 1.94%
02/01/15: 1.94%
03/01/15: 1.58% (0.1% Fixed + 1.48% Variable)
04/01/15: 1.58%
05/01/15: 1.58%
06/01/15: 1.58%
07/01/15: 1.58%
08/01/15: 1.58%
09/01/15: 0.00% (0.1% fixed - 1.6% variable)

As you can see, you can sell on August 1st to get your 12th month of interest. You officially held the bond for 15 months from May 1st to August 1st, but since you actually bought on May 31st, you effectively only held it for 14 months and still got 12 months of interest despite the 3 month interest penalty.

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I had the impression that since people were saying that redeeming on the first of the month gave credit for the entire month, I was thinking that the credit was for that month's interest, not the previous month's interest. I'll edit remove the chart until I can update it.

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astrosgp said:   That is kind of correct. If you buy or sell a bond anytime during a month, the purchase/sale gets recorded as occurring on the first of the month. So it makes sense to buy at the end of a month and sell at the beginning of a month. You don't get an extra month of interest, you just have to tie up your money for about a month less to get it. Lets use the example of a bond purchased on May 31, 2014. You will get interest on the following schedule:

06/01/14: $0 (3-month interest penalty)
07/01/14: $0 (3-month interest penalty)
08/01/14: $0 (3-month interest penalty)
09/01/14: 1.94% (first month of interest, now past the 3-month penalty)
10/01/14: 1.94%
11/01/14: 1.94%
12/01/14: 1.94%
01/01/15: 1.94%
02/01/15: 1.94%
03/01/15: 1.58% (0.1% Fixed + 1.48% Variable)
04/01/15: 1.58%
05/01/15: 1.58%
06/01/15: 1.58%
07/01/15: 1.58%
08/01/15: 1.58%
09/01/15: 0.00% (0.1% fixed - 1.6% variable)

As you can see, you can sell on August 1st to get your 12th month of interest. You officially held the bond for 15 months from May 1st to August 1st, but since you actually bought on May 31st, you effectively only held it for 14 months and still got 12 months of interest despite the 3 month interest penalty.

Also,   From Treasury Direct.....You can cash them in after one year. But if you cash them in before five years, you lose the last three months of interest. (If you cash in an I Bond after 18 months, you get the first 15 months of interest.)

 

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astrosgp said:   That is kind of correct. If you buy or sell a bond anytime during a month, the purchase/sale gets recorded as occurring on the first of the month. So it makes sense to buy at the end of a month and sell at the beginning of a month. You don't get an extra month of interest, you just have to tie up your money for about a month less to get it. Lets use the example of a bond purchased on May 31, 2014. You will get interest on the following schedule:

06/01/14: $0 (3-month interest penalty)
07/01/14: $0 (3-month interest penalty)
08/01/14: $0 (3-month interest penalty)
09/01/14: 1.94% (first month of interest, now past the 3-month penalty)
10/01/14: 1.94%
11/01/14: 1.94%
12/01/14: 1.94%
01/01/15: 1.94%
02/01/15: 1.94%
03/01/15: 1.58% (0.1% Fixed + 1.48% Variable)
04/01/15: 1.58%
05/01/15: 1.58%
06/01/15: 1.58%
07/01/15: 1.58%
08/01/15: 1.58%
09/01/15: 0.00% (0.1% fixed - 1.6% variable)

As you can see, you can sell on August 1st to get your 12th month of interest. You officially held the bond for 15 months from May 1st to August 1st, but since you actually bought on May 31st, you effectively only held it for 14 months and still got 12 months of interest despite the 3 month interest penalty.

  
I'm still a bit confused. The guy who writes the depositaccounts blog states the following at https://www.depositaccounts.com/blog/2015/04/disappointing-serie...

I Bonds increase in value on the first day of the month. So on May 1st, you'll earn the interest for the full month of May. So for maximum return, it's best to buy I Bonds near the end of the month and redeem them early in the month.

I thought he was an authority on this subject, but you seem to be saying he's wrong on the 2nd sentence above "So on May 1st, you'll earn the interest for the full month of May." It sounds like what you're saying is that on the 1st day of each month, you get the interest earned in the prior month?

rated:
Correct.  If you bought on May 31st, you are paid interest on June 1st as if you bought the bond on May 1st (except it will be three months delayed due to the early withdrawal penalty).  If you want to sell in August after getting July's interest on August 1st, it makes sense to do so early in the month, since to get any of August's interest (if it's anything greater than 0%) you would have to hold until September 1st.

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