Breaking News: U.S. Treasury Holds I Bond's Fixed Rate At 0.0%

May 01, 2017 11:11 AM ETTIP4 Comments
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Tipswatch
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Summary

  • I Bonds purchased from May to October 2017 will earn a composite rate of 1.96%.
  • If you haven't bought I Bonds in 2017, I suggest waiting until October.
  • Terms for EE Bonds didn't change - their value still doubles after 20 years, making them a very competitive investment for the right buyer.

The U.S. Treasury just announced that it is holding the fixed rate for U.S. Series I Savings Bonds at 0.0%, a major disappointment for investors looking for a boost in this popular inflation-protected investment.

Investors pay a lot of attention to the I Bond's fixed rate because it applies for the 30-year life of the bond. Here is the Treasury's explanation of the I Bond's new 1.96% composite rate:

The 1.96% composite rate for I bonds bought from May 2017 through October 2017 applies for the first six months after the issue date. The composite rate combines a 0.00% fixed rate of return with the 1.96% annualized rate of inflation as measured by the Consumer Price Index for all Urban Consumers (CPI-U). The CPI-U increased from 241.428 in September 2016 to 243.801 in March 2017, a six-month change of 0.98%.

I had speculated on April 18 that if the 10-year TIPS yield remained below 0.40%, the Treasury was likely to keep the fixed rate at 0.0%. The 10-year real yield closed Friday at 0.37%. The resulting spread of 0.37% is higher than the spread in May 2016, when the Treasury raised the fixed rate to 0.1%. But it is also below the November 2014 spread of 0.42% when the Treasury lowered the fixed rate to 0.0%.

Timing a purchase of I Bonds is always a guessing game. In this case, buyers were rewarded for buying before May 1, because they will earn a composite rate of 2.76% for six months, then 1.96% for six months. People who buy from May to October will earn 1.96% for six months and then get a new composite rate in November.

I am disappointed that the fixed rate didn't rise, but not surprised. The market has been trending against a higher fixed rate for several weeks.

This article was written by

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I am no longer writing for this site. More details. I will continue to post updates at my site, TipsWatch.com.-----David Enna is a long-time journalist based in Charlotte, N.C. A past recipient of two Society of American Business Editors and Writers awards, he has written on real estate and home finance, and was a founding editor of The Charlotte Observer's website. The Tipswatch blog, which launched in April 2011, explores ideas, benefits and cautions about U.S. Series I Bonds and Treasury Inflation-Protected Securities, which David believes are an under-appreciated and under-used investments. David has been investing in TIPS and I Bonds since 1998.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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