I-Bonds Rate Guess for May 1, 2007

By Harry Sit

The Bureau of Labor Statistics released Consumer Price Index data for March 2007 this morning. Now I can turn my pre-guess for I-Bonds Rate for May 1, 2007 into a real guess.

Over the 6-month period which will be used for determining the next inflation adjustment, the CPI rose by 1.21%. If the Treasury department keeps the current fixed rate unchanged at 1.4%, the composite rate for I-Bonds sold between May 1 and October 31, 2007 will be 3.84%. That rate is lower than what you can get from bank savings accounts, money market mutual funds and Treasury bills.

My guess is that the new fixed rate on May 1, 2007 will be unchanged. This will slightly narrow the gap between I-Bonds fixed rate and the real yield on 5-year TIPS. When the yield on 5-year TIPS rose last year, I-Bonds didn’t follow. Now the TIPS yield is down a little bit, I-Bonds probably won’t follow either.

I-Bonds have become a big yawn because the Treasury department purposefully allowed them to fall behind the market yield. I will probably redeem my old 1.6% I-Bonds when they reach their 5-year anniversary.

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Posted on April 17, 2007 under Investing. Keywords: .

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