Treasury Sets New Rate on I Bonds. It Dropped Nearly 3%

[ECE Prof]

www.barrons.com/amp/articles/i-bonds-treasuries-inflation-51667314226

Government can play with bonds and their rates. Who says that the government cannot change the rules? It happens in all countries, free, or dictatorships. That is because the government of the day plays politics to suit its interests and the people of their country. It is bad luck for foreign countries that many of them own US bonds. I understand that some central banks are selling the US bonds in order to support their currencies against the King dollar. That is why the interest rate of the 10-year drops below 4% on some days.

[Norbert]

"I understand that some central banks are selling the US bonds in order to support their currencies against the King dollar. That is why the interest rate of the 10-year drops below 4% on some days." (ECE Prof)

Am I wrong in stating that foreigners dumping T-Bonds would cause their yields to rise, not fall?

[Deleted]

The government did not change the rules. The 6 month I-Bond variable rate dropped because the rate of inflation dropped. That's the rule and it's being followed

I-Bonds are not available to foreign governments. Foreign governments have absolutely nothing to do with I-Bond rates.

[Deleted]

Nov 1, 2022 16:28:07 GMT Norbert said:

"I understand that some central banks are selling the US bonds in order to support their currencies against the King dollar. That is why the interest rate of the 10-year drops below 4% on some days." (ECE Prof )

Am I wrong in stating that foreigners dumping T-Bonds would cause their yields to rise, not fall?

According to Investopedia. when confidence is low, prices rise and 10yr yield drops. (Investors don't believe they can do better elsewhere.)

[ECE Prof]

Treasury started buying when the foreigners are dumping the low yields now, “to provide stability” in the market, to use Miss. Yellen words.

Add/Edit: I don't buy bond OEFs/ETFs.

[mozart522]

The new rate was easy to predict as you already had 5/6 of the inflation data. 6 something was clear a month ago.

[hondo]

Still not a bad rate at all. I'll take it.

[Deleted]

The new I-Bond rate from 11/01/2022 to 04/30/2023 is 6.89%.  Includes a fixed rate of .4%.

Didn't see it posted above.

[bb2]

To Sara's point: From Barron's yesterday:

You Should Have Waited. The New I Bond Rate Is More Attractive.
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Sometimes it pays to procrastinate.

Individual investors rushed to purchase series I Treasury inflation-linked savings bonds last week, before a Friday deadline to get a 9.6% interest rate for the first six months.

There were record daily purchases of about $1 billion of I Bonds Friday and $7 billion for October. Investors were so eager to get the juicy rate that the TreasuryDirect website struggled under the traffic last week. Many people couldn’t access it.

Yet the new rate structure for I Bonds actually is more attractive, even though the rate of 6.89% for the first six months, announced earlier Tuesday by the Treasury, is lower, Barron’s estimates.


Why? Investors now will get a fixed rate of 0.4% annually in addition to an inflation adjustment, which gave people who bought the debt from May through October their 9.6% yield. Those buyers will get a fixed rate of zero for the life of the savings bond, plus the inflation adjustment, which is reset every six months based on the consumer price index.

The benefit of the 0.4% fixed rate will play out over time because I Bonds have a maturity of 30 years. After about four years, current buyers should be ahead of those who bought bonds last week.

The new rate of 6.89% reflects the inflation component of 6.49% based on inflation from March to September plus the fixed rate of 0.4%.


Many investors don’t realize there are two parts to the I Bond rate: the fixed rate plus the inflation adjustment. As the Treasury states on the TreasuryDirect website: “You know the fixed rate of interest that you will get for your bond when you buy the bond. The fixed rate never changes.”

The Treasury announces a new I Bond rate every six months, including the fixed rate that applies for the life of the bonds. That rate applies to bonds sold over the ensuing six-month period.

The fixed rate of 0.4% likely was set because of this year’s sharp increase in real, or inflation-adjusted, rates on Treasury inflation-protected securities, or TIPS. The real yield on TIPS 912828B253 +1.85% , which are bonds sold periodically by the Treasury with five-, 10-, and 30-year maturities, is up to about 1.5% from negative 1% at the start of 2022.

That means the fixed rate on I bonds is below the 1.5% real rate on TIPs.


Still, I Bonds have one key advantage. Taxes on I Bond interest can be deferred until the bonds are redeemed, or until they mature in 30 years. This isn’t the case with TIPS.

Interest on I Bonds, TIPs, and other Treasury obligations is exempt from state and local taxes, but subject to federal income taxes.

The main drawback with I Bonds is that individuals can buy only $10,000 per calendar year, although they can get an additional $5,000 in paper bonds using the proceeds of tax refunds. I Bonds are generally available only virtually, via the TreasuryDirect website. Certain partnership structures allow for the purchase of another $10,000 a year.

Investors must hold I Bonds them for a year and lose a quarter’s interest if the debt is redeemed within five years. Interest on I Bonds accrues and is added to the value of the bonds rather than paid in cash, so that it compounds over time.

[mozart522]

And folks can wait another 3 months and buy another 10K at 6.89 with a .4% fixed rate. A couple would invest 40K by January. But it only really makes sense to me if you have 40K in a taxable account, which I don't, plus I'll be long dead in 30 years.