I-Bonds Discussion Thread (continuation of the FW thread)

Finance
#544

@harish7631

Are I Bonds still attractive?

I Bonds purchased from January to April 2023 will pay an annualized composite rate of 6.89% for six months, which includes the fixed rate of 0.4%. Is 6.89% attractive? Definitely. But let’s look at the alternatives:

  • A six-month Treasury bill has a nominal yield of about 4.76%.
  • Best-in-nation 6-month bank CDs are yielding about 4.4%.
  • A 1-year Treasury bill has a nominal yield of about 4.73%.
  • Best-in-nation 1-year bank CDs are yielding about 4.75%.
  • A 5-year Treasury note now yields about 4%.
  • A 5-year TIPS has a real yield of about 1.58%.

As a six-month investment, an I Bond definitely looks attractive. But keep in mind that an I Bond has to be held for at least 12 months, and redeeming before 5 years forfeits your last three months of interest. That brings uncertainty into the equation.

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#545

Thanks, Xerty.

#546

Funny that safe I Bonds did better than the most risky Crypto last year

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#547

…until you consider that the year(s) before, that Crypto often gained more in one day than I-Bonds earned for the entire year.

#548

fair enough. Willing to stomach volatility in stock indices b/c long term trends are up/recovers . Crypto could go to 0.

Back to topic I Bonds my only concern is 0 years (I’ve had a few since I have “set it and forget it” since buying with a CC FWF days. I will be more mindful if /when inflation goes down. Thankfully it is headline news these days.

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#549

The Feds fudging the inflation numbers doesn’t impact I bonds since they don’t use the “seasonally adjusted” CPI numbers in the headlines.

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#550

Good article about how to compute the current value of I-bonds.

The article links to this page that has a calculator for the current value

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#551

Guessing rates for the next reset in May

if my estimates are close we should expect the May I-bond to offer 0.7-0.9% fixed rates with 2-2.4% variable rates for a composite rate of 2.7-3.3%. This is far below the current 6.89%.

Although investors may be attracted to the 6.89% annualized yield, as compared to other fixed income assets, this yield is only offered for 6 months. If CPI ends up being 1% by May, resulting in the next variable rate of 2% annualized, I-bonds bought today will only offer 4.05% over the next 12 months when the early redemption penalty is assessed. Investors can earn 5%+ from the 1-year Treasury now.

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#552

I thought it was going to take a long time to achieve their 2% target inflation? Yet here we are?

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#553

It’s a very short term thing, annual CPI window vs the 6mo for I bonds. Energy and housing have dropped CPI lately, as well as some weird healthcare calcs, all the while Core CPI is running 5-6% annually each month. Basically, this most recent 6 month I bond period caught the downdraft and so may be a good time to sell / avoid.

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