Yeah, I know. I have been in the wait-until-November camp, especially when it looked like the I Bond’s variable rate could fall to the negative on May 1. Instead it will reset to 0.16%, which was determined by the March inflation report.
The other factor was watching yields on the 5-year TIPS – an investment I consider very similar to an I Bond – dropping into negative real returns. When that happens, even a fixed rate of 0.0% on an I Bond is preferable to a 5-year TIPS. Plus you get tax-deferred income, a flexible maturity date and better protection against deflation.
Today’s auction of a new 5-year TIPS resulted in a real yield to maturity of -0.195%. Do the math. That’s 29 basis points lower than the I Bond’s current fixed rate of 0.10% So I Bonds have suddenly gotten attractive again, even with a fixed rate of 0.1%.
But here’s the problem: that fixed rate might to drop to 0.0% on May 1. I think the odds are 50/50, and there’s no chance the fixed rate would rise to 0.2% or higher (my opinion – and I don’t work for the Treasury.)
Read my analysis on SeekingAlpha.com: