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💡 Key idea:
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Key takeaways
- Bond prices are adjusted twice a year based on six months of inflation data. Today’s Consumer Price Index (CPI) report allows us to anticipate what the Treasury will announce next week.
- As inflation rises, the next interest rate on bonds will rise An increase of about a quarter point– Up to 4.42% for some bondholders.
- Some bondholders will get the boost on November 1, while others will see it between December 1 and April 1, depending on the bond’s issuance date.
We can now predict the next bond rate – here’s what’s changing
Inflation is usually bad news for your portfolio, but for bondholders, there is an upside. The Consumer Price Index released today shows prices rising 3.0% over last yearUp from 2.4% in March. Since bond yields are directly linked to inflation, this upward trend means higher yields are on the way when the Treasury updates bond rates on November 1.
The yield paid by bonds is recalibrated twice a year using inflation data from the previous six months. With today’s CPI report, we can now estimate the new current bond rate – and it’s set to move About a quarter of a percentage point higher.
Here’s a quick breakdown of how each bond’s rate is calculated. Bond yields consist of two parts: a fixed rate that is locked in for the life of your bonds (up to 30 years) and a variable inflation rate, which changes twice a year — May 1 and November 1 — according to the Consumer Price Index. Add the two together, and you get the compound rate — which is the return your bonds will earn over the next six months.
Below, we’ve done the calculations for all I bonds issued since November 2021, so you can see how your interest rate will change once the new amendment takes effect.
Why is this important to you?
High inflation is not a good thing for most savers, but it means a slightly better return for bondholders. The latest CPI data confirms that the rate for the next six months will rise by about a quarter of a percentage point.
advice
to Future bond purchasesWe will not know what the fixed interest rate will be until after the Treasury makes its announcement on November 1. We know they will have the same 3.12% inflation component as existing bonds, but the Treasury does not publish its formula for determining the fixed component for new I bonds.
When your I bond rate is adjusted
Note that while the Treasury is scheduled to announce these new rates on November 1, the month in which the new rate will start for you is Based on the month your bonds were issued. Only people with I Bonds purchased in May or November (of any year) will receive the new rate indicated above on November 1. For other release dates, the start of the new pricing will be delayed according to this timeline.
advice
Did you purchase bonds before November 2021? The 6-month rate for all bond issue dates dating back to 1998 can be found in the US Treasury bond rate chart.
Are you considering a new bond? Move quickly before the price resets
According to estimates by some industry experts, the fixed rate component of bonds issued on November 1 or later will almost certainly be lower than the most recent fixed rate of 1.10% – and perhaps as much as 0.90%. That means if you’re thinking of buying new I-bonds soon, you are Best to buy before November 1st. Ideally, you will need to make your purchase from Treasury Direct by October 28 or 29 to allow some time for the bond to be issued by October 31.
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