Savings Bond Alert #019
Wednesday, April 19th, 2006
Categorized as: Savings Bond Alerts
Next I bond inflation component 1.01%
The Consumer Price Index for March, released this morning, was 199.8. The inflation rate paid by Series I Savings Bonds is based on the difference between the March and September levels of the CPI. Expressed as an annual rate, the March number is 1.01% above September’s level of 198.8.
This will create the second-lowest inflation component for I bonds since they were introduced in 1998. Only the 0.56% rate announced in May 2002 has been lower.
The current 6.73% I bond composite rate has caused investors to pour money into I bonds. Although they may be disappointed with their second-half earnings, their first-year yield will still be a very respectable 4.36%.
The low inflation component combined with continued upward movement in the market-based rate for TIPS, the Treasury’s other inflation-protected security, should cause the Treasury to raise the fixed base-rate for I bonds issued after May 1 above its current historic low of 1.00%.
Meanwhile, investors who like inflation-protection and who have TreasuryDirect accounts have an opportunity to invest directly in new 5-year TIPS early next week. The Treasury’s official announcement comes tomorrow, but the tentative announcement says orders have to be placed by Tuesday morning. Look on the www.savings-bond-advisor.com web site tomorrow for detailed information.
Some of the other stories on the Savings Bond Advisor web site in the last month include: