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Technology leads stocks higher ahead of key inflation data
As inflation declines, the popular I-bond trade of recent years no longer looks so attractive.
Kerry Hannon of Yahoo Finance reports:
It’s a good time to sell those I bonds you bought when they came into vogue two years ago amid red-hot inflation, which sent the annualized rate soaring to 7.12% in November 2021 and a record 9.62% in May 2022.
The high annual rate has since stabilized as inflation has been reduced, and I bonds raised during those heady days are paying about a third of those attractive rates, or 3.97%.
Here because. The bond I rate is composed of a fixed rate, which applies for the 30-year term of the bond, and a semi-annual variable inflation rate calculated from the semi-annual change in the consumer price index.
The annualized return for the latest obligations is 5.27% – a high fixed rate of 1.30%, plus the variable rate of 3.97% which will be reset again in May.
In contrast, the fixed rate on I bonds in November 2021 and May 2022 – when inflation was skyrocketing – was 0%. This means that older bonds now earn the current floating rate, period.
Takeaway food? Redeem and reinvest.
“I have personally sold mine and am advising clients to do the same,” Danielle Howard, a certified financial planner with Wealth by design in Glenwood Springs, Colorado, told Yahoo Finance. “Depending on individual cash flow considerations, we are looking at money markets, laddered CDs and corporate bonds.”