Savings Bond Alert #023
Wednesday, August 16th, 2006
Categorized as: Savings Bond Alerts
CPI up 4.1%; new Savings Bond investments hit 20-year low
The Bureau of Labor Statistics announced this morning that the Consumer Price Index (CPI) shows July’s prices were up 4.1% from a year ago. The Series I Savings Bond inflation component is based on the difference between the CPI in March and September.
With just August and September’s CPI yet to be determined, the next I bond inflation component looks like it will be one of the highest on record. If it exceeds 3.81%, which now appears very likely, it will be the second-highest I bond inflation component ever. To be the highest ever it will have to exceed last year’s 5.69%, which is still possible but is becoming less likely.
This will put the rates for new I bonds in the 5% to 6.5% range. Rates for older I bonds would vary from 5% to 9%, depending on issue date.
Meanwhile, new investments in Savings Bonds hit a 20-year low in July, according to the US Treasury. This wild swing from the investment rate six months ago in January - which hit a 10-year high - can be attributed to the wild swings in Series I bond interest rates. Those swings have been caused by the unusual pacing of inflation over the last year.
TreasuryDirect implemented a number of security enhancements during the last month and the government’s Savings Bond web site has been upgraded and enhanced.
Other stories on the Savings Bond Advisor web site in the last month include:
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Tom Adams
Based on last November, the Treasury seems to adjust the fixed rate based on the inflation rate. So it’s starting to look more likely that we won’t see much rise (if any) in the I bond fixed rate. Perhaps it’ll be a repeat of last November, and the fixed rate will drop.
Are the days of 3%+ I bond fixed rates a thing of the past?
Paul - in the most general sense, the I bond fixed base-rate should be related to the amount of risk you’re taking - the more risk, the higher the rate.
One way to interpret the high base rates right after TIPS and I bonds were introduced is that the early investors were taking some early-investor risk and the Treasury had to pay higher rates than it does now.
There’s a link in the main article above to an article about an S&P report that says the base rate on inflation-protected securities correlates well with the credit rating of the issuing government.
At any rate, TIPS and I bonds are less than 10 years old. I don’t think we have enough history yet to know what the “typical” fixed rate will be, although right now those early I bonds with the 3%+ base rates look really good.