I-Bond Update

Market Minute

May 2023 – By Scott Rosenquist, CFA®

The U.S. Treasury announced the new rate of 4.3% for Series I bonds issued from May 1st through October 31st of this year.  The new rate is down from the 6.89% offered previously, reflecting the decline in inflation over the past several months.  In May of 2022, the interest rate was 9.62% which generated a lot of interest from individual investors and led to incredibly high issuance of I-bonds from the Treasury.

As a reminder, the interest rate on I-bonds is set twice a year, in May and November, and has two components.  The new inflation adjustment of 3.4% is based on the consumer price index in the prior six months (multiplied by 2) and a fixed rate component that applies to the life of the bonds (30-year maturity).  The lower rate on the bond shows that inflation has come down, but the fixed component increased in May from .40% to .90%.  This fixed component has increased as the Federal Reserve has raised interest rates aggressively over the past year to cool the economy and bring inflation down.  The .90% fixed rate is at the highest level since November 2007.

There are limitations to buying Series I-bonds worth noting that I’ve highlighted in the past (Series I Savings Bond | Vantage (vantagefinancial.com)).  While the fixed rate has increased and applies to the life of newly issued bonds, rates are higher across several fixed-income instruments that offer more flexibility.    

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