Treasury Inflation-Protected Securities

U.S. inflation increased 0.2% in April, as annual rate falls to a 4-year low

Posted on May 13, 2025 by Tipswatch

This is positive news, but uncertainties remain.

By David Enna, Tipswatch.com

I am writing this on a sunny Tuesday afternoon in Stockholm, Sweden, so I plan to be brief, to the point, and then get on to exploring this beautiful city.

The Consumer Price Index for All Urban Consumers increased 0.2% on a seasonally adjusted basis in April, after falling 0.1% in March, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, U.S. inflation increased 2.3%, down from 2.4% in March. Both of those numbers were below expectations.

Core inflation, which removes food and energy, came in at 0.2% for the month, also below expectations, and held steady at 2.8% year over year.

Although these numbers could be seen as a positive surprise, Barron’s had been estimating all-items inflation at 0.2% for the month, so economists may have been wavering in the 0.2% to 0.3% range. Clearly, the full effects of U.S. tariffs on imports weren’t felt in April, but should be reflected more in May’s numbers.

Nevertheless, annual inflation of 2.3% was the lowest level since February 2021. That is significant.

The BLS noted that a 0.3% increase in the cost of shelter accounted for more than half of the overall increase in inflation. Shelter costs were up 4.0% for the year, a number that remains stubbornly high. Also from the report:

Gasoline prices fell 0.1% for the month and are down 11. 8% year over year.
The costs of food at home fell a surprising 0.4% in April, and are now up just 2.0% year over year.
The BLS said costs of meats, poultry, fish and eggs fell 1.6% in April but are up 7.0% over the last year. (Egg prices fell 12.7% for the month.)
Apparel costs, which could soon be greatly affected by tariffs, fell 0.2% for the month and are down 0.7% for the year.
Airline fares fell 2.8% in April and are down 7.9% for the year.
The costs of motor vehicle insurance rose 0.6% in April after falling 0.8% in March.
Prices for new vehicles, also likely to be hit by future tariffs, were flat for the month. Many auto makers announced price freezes in April to soothe consumer fears of high tariffs. In addition, the BLS made changes to its leased car calculations, which could have had a minor effect on the totals. See this for more information.

It’s clear that the April inflation report isn’t showing much (if any) effect from U.S. tariffs that began to roll out early in the month. Many importers front-loaded orders to get inventory in before tariffs were applied. That could be the reason you’d see an item like apparel costs decline instead of rise.

Here is the overall trend for U.S. inflation over the last 12 months, showing the continued declines in both all-items and core inflation.

What this means for TIPS and I Bonds

Investors in Treasury Inflation-Protected Securities and U.S. Series I Savings Bonds are also interested in non-seasonally adjusted inflation, which is used to adjust principal balances on TIPS and set future interest rates for I Bonds. The BLS set the April index at 320.795. an increase of 0.31% over the March number.

For TIPS. April inflation means that principal balances for all TIPS will increase 0.31% in June, after an increase of 0.22% in May. For the year ending in June, TIPS principal balances will have increased 2.3%. Here are the new June Inflation Indexes for all TIPS.

For I Bonds. The April inflation report is the first of a six-month string that will determine the I Bond’s new variable rate, which will be reset on November 1. So far, inflation has increased 0.31% and we have a long way to go before things get meaningful. The numbers:

View historical data on my Inflation and I Bonds page.

What this means for future interest rates

Who knows? Since the Monday announcement of a potential tariff deal with China, both real and nominal interest rates have been increasing moderately, especially for the longer-term issues. The 10-year real yield is trading today at 2.13%, up 5 basis points from Friday’s close.

There is no question that the data in this April inflation report paints a positive picture of gradually falling prices, but the U.S. economy faces a lot of unknowns: tariffs, a looming debt-limit crisis, expanding future budget deficits. This is from Bloomberg’s morning report:

The downside surprise in the CPI doesn’t mean tariffs aren’t impacting the economy, it just means they aren’t showing up in the data yet. Wait-and-see is still the name of the game, and until that changes, the Fed will remain on the sidelines. (Ellen Zentner at Morgan Stanley Wealth Management)

In our view though, it is still too early to judge the inflationary impact of new tariffs. The modest pass-through in April likely reflects pre-tariff inventory being cleared, not a lack of pricing power. That buffer may not last. (Lale Akoner at eToro)

This report is significant for its timing, as it is the first month following the announcement of the tariffs. However, it doesn’t offer an honest reflection of how businesses may ultimately respond to higher costs throughout 2025. … The parade of uncertainty continues as the hard data continues to provide mixed messages. (Stephen Kates at Bankrate)

My feeling is that moderate April inflation should help speed up the Federal Reserve’s moves to begin cutting short-term interest rates. But there is still no clarity. So I am not “banking” on rate cuts until mid-2025, at least.

* * *

Follow Tipswatch on X for updates on daily Treasury auctions and real yield trends (when I am not traveling).

Feel free to post comments or questions below. If it is your first-ever comment, it will have to wait for moderation. After that, your comments will automatically appear. Please stay on topic and avoid political tirades. NOTE: Comment threads can only be three responses deep. If you see that you cannot respond, create a new comment and reference the topic.

David Enna is a financial journalist, not a financial adviser. He is not selling or profiting from any investment discussed. I Bonds and TIPS are not “get rich” investments; they are best used for capital preservation and inflation protection. They can be purchased through the Treasury or other providers without fees, commissions or carrying charges. Please do your own research before investing.

Posted in Federal Reserve, I Bond, Inflation, Investing in TIPS, Savings Bond, Tariffs | Tagged economics, economy, finance, inflation, investing, personal-finance | 10 Comments

Looking back on 40 days of financial chaos

Posted on May 10, 2025 by Tipswatch

And … see below for travel news.

By David Enna, Tipswatch.com

Ever since Liberation Day on April 2, I’ve been watching financial markets in awe. At first, there were scary moments as the stock and bond markets roiled and American financial dominance came into question. Then, we got a surge in optimism because … “hey, it’s not that bad, right?”

Did I make a single financial move in those 40 days? No. I would have done some rebalancing when stocks fell into a bear market, but that phase seemed to last a couple hours. It is remarkable how little has changed amid all this turmoil.

I did a quick check and the value of my investments actually increased about 0.6% in the 40 days since April 1. Surprising.

Real yields

In “normal times” of financial panic you can expect to see stock prices falling and demand rising for U.S. Treasurys, as investors seek safety. And that is exactly what happened in the immediate aftermath of the April 2 tariff shock. In this case, shorter-term real yields fell more sharply than longer-term rates.

But then, after a weekend to ponder these U.S. moves, foreign investors and leveraged hedge funds began selling out of Treasurys, creating a shocking move higher in yields. The real yield of a 5-year TIPS rose 57 basis points in 6 market days. The 10-year real yield rose 50 basis points in that same time. The 30-year, 40 basis points.

Some financial analysts were predicting an end to “American exceptionalism” with potentially dire consequences.

Since May 1, the Treasury market has settled down, with real yields still elevated a bit, especially for the longer-term issues. I expect to see volatility continue for the rest of 2025.

Additional perspective

I have been saying for many months that I think a big bank / hedge fund bailout will eventually follow the great deal of risk that markets have been taking in early 2025. MarketWatch reporter Joy Wiltermuth posted an interesting article Friday with the headline: “Here’s how an obscure bet on bonds almost crashed the $29 trillion Treasury market, Fed official says.” (The link is to a free version.)

A massive bond bet backfired in April — and a top Federal Reserve official now says it likely sparked the biggest spike in long-dated Treasury yields since 1987.

Roberto Perli, who manages the Fed’s roughly $6 trillion securities portfolio, said Friday that the abrupt unwinding of a popular trade known as the swap-spread trade likely exacerbated April’s liquidity crunch in Treasurys.

The turmoil began after President Donald Trump announced sweeping new tariffs on April 2. At first, investors rushed into U.S. government debt in a “classic flight-to-safety” trade. But just days later, yields on long-dated Treasurys reversed sharply; the 30-year yield rose nearly 50 basis points in a week, its biggest such jump since 1987.

“One factor that appears to have contributed to this unusual pattern is the unwinding of the so-called swap-spread trade,” said Perli, manager of the New York Fed’s System Open Market Account, in a speech on Friday.

Perli also pointed to reports of leveraged investors being caught off guard by sudden moves in the Treasury market.

Investors piled into the swap-spread trade in early 2025 in hopes of a windfall should Trump usher in promised deregulation, especially for the banking sector. That trade backfired in April …

Trump pointed to a “yippy” bond market when he abruptly paused his April 2 tariffs for 90 days for most U.S. trade partners, with the exception of China.

And there you go. These are risky times when regulation is near zero.

TIPS in general

The TIP ETF holds the full range of maturities of Treasury Inflation-Protected Securities. While it has had a volatile month, on May 7 it was showing a positive total return (including dividends) for both the last month and year to date.

One thing to consider: Shorter term TIPS are less volatile and less affected by interest-rate swings. The TIP ETF holds about 44 issues, and 27 of those mature in the next five years, where real yields have remained relatively low. That lessens the apparent volatility.

U.S. stock market

The immediate tariff reaction created fears of recession, plus the potential for global shunning of U.S. investments. The S&P 500, represented here by the SPY ETF, fell into bear market territory (down 20% from its previous high) on the morning of Monday, April 7. On April 9, President Trump announced a 90-day pause on “reciprocal tariffs” for most countries, except China. That helped calm the stock market, along with some positive earnings reports in recent weeks.

In this chart, note that the 11.7% total return from April 7 to May 7 is a bit misleading, because April 7 was the market low. In reality, very little has changed since April 1, up or down. The stock market remains down for the year to date.

U.S. dollar

The trend toward a weaker U.S. dollar is bad news for U.S. consumers, who will already be facing higher prices triggered by 10% tariffs (at least) on global imports. But it could be good news for U.S. manufacturers, who might see improved demand for now-lower-cost exports (if they aren’t hit by new reciprocal tariffs).

A weaker U.S. dollar could lead to price increases for many imported products (food, clothing, raw materials, etc.) and could also be seen as a driving force behind the 13% increase in the price of gold over the last 60 days.

Gasoline prices

In an April 22 meeting with reporters, President Trump said, “We had a couple of states where gasoline was at $1.98 a gallon.” This was not correct. In fact, the lowest statewide price of gas on that day was $2.66 a gallon and the national average was $3.14.

It is true that the price of crude oil has been declining, fairly dramatically, in 2025. But so far, those price declines haven’t been reflected at the gas pump for U.S. consumers. This could be because of seasonal mix changes, or because the cheaper gas hasn’t been delivered yet, or just the fact that gas stations are always fairly slow to lower prices.

So far, Liberation Day has had nearly no effect on the price of gasoline. But if crude oil prices continue declining, I would expect to see lower prices in the near future.

The effect of tariffs

So far, U.S. consumers have not seen a tremendous effect from the tariff rollout on April 2. A lot of retail firms front-loaded orders to avoid new tariffs, and Chinese goods have been virtually shut out from the U.S. by the current 145% tariff rate.

This chart, from Yale’s Budget Lab, is probably misleading because it is skewed by the 145% tariff on goods from China, which at this point U.S. consumers are not buying. But we do know a 10% tariff on all imported goods is currently in effect. The Budget Lab estimates the real tariff rate is about 18% if you factor in consumption shifts. That is the highest level since 1934.

The Budget Lab estimates the average cost of tariffs per household would be $2,600 per year. This is inflationary.

It also estimates current tariff levels could lower U.S. GDP by 1.1% and the unemployment rate could rise 60 basis points, costing 770,000 jobs. This is potentially deflationary.

These conflicting forces are reflected in this statement from Fed Chairman Jerome Powell on May 7:

The risks of higher unemployment and higher inflation appear to have risen. … Survey respondents, including consumers, businesses, and professional forecasters point to tariffs as the driving factor.

What we don’t know

Tariff policy is changing daily, sometimes more than once a day. So it is impossible for the markets to get a grasp on where the economy is heading. In addition, the U.S. is racing very quickly toward a thorny debt-limit crisis, plus tax and budget decisions that could greatly increase government borrowing.

So far, the financial effects of the Liberation Day aftermath have been surprisingly small. But in the future, keep on eye on the Treasury market, especially, to see if any cracks are forming. We went through a scary few days in early April. I hope we don’t revisit that fright.

In the meantime, inflation-protected investments like TIPS and I Bonds continue to look appealing, with real yields at or near 15-year highs.

What I do know

Today I am heading off for a week in Stockholm before joining the ‘Viking Homelands‘ cruise with … Viking, of course. I should have internet access “most of the time” and should be able to post the April inflation report on Tuesday morning, which is 2:30 p.m. in Stockholm. (The current forecast is for 0.2% all-items inflation for April.)

I will also attempt — on Sunday, May 18 — to preview the May 22 reopening auction of a 10-year TIPS. Then I hope to post the results after the auction’s close, when I can. At that point I have no idea where I will be.

Realize I may not be able to answer questions or follow financial news during this time.

* * *

Follow Tipswatch on X for updates on daily Treasury auctions and real yield trends (when I am not traveling).

Posted in Federal Reserve, I Bond, Inflation, Investing in TIPS, Tariffs | Tagged investing, personal-finance, The Treasury | 16 Comments

What’s the composite rate for your I Bonds?

Posted on May 4, 2025 by Tipswatch

By David Enna, Tipswatch.com

The Treasury just set the new composite rate for I Bonds purchased from May to October 2025: 3.98% for six months, based on a combination of a permanent fixed rate of 1.10% and an inflation-adjusted variable rate of 2.86%.

But what about all those I Bonds you are holding from past purchases? What composite rate will they be earning? The answer is a bit complicated, of course. You knew that was coming. Let’s dive in.

Rate calendar

The 2.86% inflation-adjusted variable rate will roll into effect for all I Bonds, no matter when they were issued. But the starting date depends on the month of your original purchase. Each month has a different schedule, because when you purchase an I Bond, it gets a full six months of the starting composite rate before transitioning to the next rate. This is the schedule, from TreasuryDirect:

Example 1: Purchase in April 2024

If you bought an I Bond in April 2024 with a fixed rate of 1.30%, it will be earning a composite rate of 3.21% from April to September 2025, before transitioning to 4.18% for October 2025 to March 2026.

In this case, if you used the Savings Bond Calculator to check your composite rate, for May 2025 it would show the current 3.21% rate in effect through September.

But in the calculator you can update the “Value as of” variable to October 2025 and see the next composite rate of 4.18%:

Keep in mind that the Savings Bond Calculator will not show interest for the last three months if the I Bond is not yet 5 years old. I used $1,000 in these examples because the SBC does not allow a $10,000 calculation. (In theory, it is limited to paper I Bonds, which are no longer issued.) Weird, I know.

Example 2: Purchase in May 2024

If you bought an I Bond in May 2024, also with a fixed rate of 1.30%, you transitioned this month to earning 4.18% from May to October 2025.

This matches the composite interest result rate shown in the Savings Bond Calculator with a “value as of” May 2025:

For this I Bond, if you set the “value as of” October 2025 you will get the same composite rate, 4.18%. If you try to enter a “value as of” November 2025, the SBC will give you “NA,” because it does not yet know the next variable rate.

In summary. This might seem complicated, but the key thing to remember is that the I Bond will earn the current composite rate for a full six months before transitioning to the next fixed rate / variable rate combination.

The rate calculation

You can’t just add the current variable rate to your I Bond’s fixed rate to calculate the I Bond’s composite rate, although that will give you a decent estimate. The Treasury uses a formula that adjusts for compounding factors of the fixed rate:

[Fixed rate + (2 x semiannual inflation rate) + (fixed rate x semiannual inflation rate)]

So with a fixed rate of 1.10% and inflation rate of 1.43%, the current composite rate calculation looks like this:

0.011 + (0.0286) + (0.0001573) = 0.0397573

Rounding gives you 0.03976. Turning the decimal number to a percentage gives a composite rate of 3.98%.

This same rate formula applies to all I Bonds, no matter when they were issued. If the fixed rate is 0.0%, then the composite rate is simply the current variable rate. So, for example, an I Bond issued in May 2021 with a fixed rate of 0.0% will be earning 2.86% from May to October 2025:

If you know the month you purchased the I Bond, you can use Eyebonds.info or the Savings Bond Calculator as a resource to track your current fixed rate / variable rate / composite rate combination.

Full list of composite rates

The author of the Eyebonds.info site, Bob Hinkley, who is known as #cruncher on the Bogleheads forum, recently posted a slick summary chart of all the composite rates going into effect with the May reset:

Using this information (thank you #cruncher!) I compiled a list of all the composite rates that will take effect when the 2.86% inflation-adjusted variable rate rolls in, depending on the original month of purchase. Here it is, ranked by largest to smallest and by newest to oldest. The first two lines set the pattern for months in effect for each reset, May to October and then November to April:

• Confused by I Bonds? Read my Q&A on I Bonds

• Let’s ‘try’ to clarify how an I Bond’s interest is calculated

• Inflation and I Bonds: Track the variable rate changes

• I Bonds: Here’s a simple way to track current value

• I Bond Manifesto: How this investment can work as an emergency fund

* * *

Follow Tipswatch on X for updates on daily Treasury auctions and real yield trends (when I am not traveling).

Posted in Cash alternatives, I Bond, Inflation, Savings Bond, TreasuryDirect | Tagged finance, investing, Treasury investments | 12 Comments

I Bond gets a new fixed rate of 1.10%, composite rate of 3.98%

Posted on April 30, 2025 by Tipswatch

A predictable result in unpredictable times.

By David Enna, Tipswatch.com

The U.S. Treasury held to past practices today, setting the new fixed rate for the U.S. Series I Savings Bond at 1.10%, as expected, and the new composite rate at 3.98%, also expected.

This was welcome news, indicating the new administration will maintain consistent support for the savings bond program.

No news release has yet been posted; that should come tomorrow. Bizarrely, just a few minutes after the new rate was posted at 8:30 a.m. on TreasuryDirect, it was taken down and the site was again showing the 3.11% composite rate in effect through April 30.

At 10:10 a.m., the site went live again with the new rate, 3.98%.

In recent years, TreasuryDirect has posted the new rate a day early. Even though the rate change officially takes effect May 1, any purchases today at TreasuryDirect will get the new rates. I confirmed this with a test order this morning:

For the time being, I am going to ignore this flip-flop and assume the fixed rate was set at 1.10%, variable rate at 2.86% and composite rate at 3.98%. And that is what an investor will get with a purchase today through late October.

Update: Here is TreasuryDirect’s news release on the new rates.

What is an I Bond?

The U.S. Series I Savings Bond is a U.S. Treasury security that protects the investor against increases in inflation:

The fixed rate will never change. Purchases through Oct. 31, 2025, will have a fixed rate of 1.10%, down from the previous rate of 1.20% in effect through April.
The inflation-adjusted rate (often called the variable rate) changes each six months to reflect the running rate of inflation. That rate is now set at 2.86%, based on inflation of 1.43% from October 2024 to March 2025. This new rate applies to all I Bonds, no matter when they were issued. (However, the effective start date of the new interest rate will vary depending on the month you bought the I Bond.)
The I Bond’s current composite rate is now 3.98%, annualized, for a full six months for any bond purchased from May to October 2025. That is an increase from 3.11% for I Bonds purchased in April.

The fixed rate. The Treasury has not revealed a method for setting the I Bond’s fixed rate. But over the last decade, it appears to have leaned heavily on this formula for setting the I Bond’s new fixed rate: Apply a ratio of 0.65 to the average 5-year TIPS real yield over the preceding six months. It seems to have held to that formula for this reset:

This was one area that concerned me in the new administration, because changes in policy are always possible. But today’s decision is reassuring that we can expect Treasury to follow predictable policies of the past.

The variable rate. This component of the I Bond’s composite rate wasn’t in doubt. It is based on six months of inflation, in this case 1.43% from October 2024 to March 2025. Double that rate and you get the annualized variable rate, 2.86%.

Again, it is worth noting that this new variable rate will go into effect for all I Bonds, no matter when they were issued. So if you are holding 0.0% fixed rate I Bonds, you will get 2.86% interest for six months. The starting month of the new rate depends on when you initially purchased the I Bond.

The composite rate. The I Bond’s composite rate isn’t calculated by simply adding the variable and fixed rates. The Treasury uses a formula that adjusts for compounding factors of the fixed rate:

[Fixed rate + (2 x semiannual inflation rate) + (fixed rate x semiannual inflation rate)]

So with a fixed rate of 1.10% and inflation rate of 1.43%, the new composite rate calculation looks like this:

0.011 + (0.0286) + (0.0001573) = 0.0397573

Rounding gives you 0.03976. Turning the decimal number to a percentage gives a composite rate of 3.98%. This rate is in effect for six months for I Bonds purchased from May to October 2025. I Bonds purchased in the November 2024 to April 2025 period will eventually get a composite rate of 4.08% for six months.

What this all means

Let’s assume the posting, then pull-down, then re-posting of the new composite rate was an accident and not the result of some Treasury official running down a hall screaming, “We can’t do that!” The fixed rate is the key to an attractive I Bond, and a rate of 1.10% above inflation remains appealing.

The chart shows all the times in history, dating back to September 1998, that the I Bond’s fixed rate was 1.0% or higher. While May 2025 is low on this list, note that only four of these high-level resets happened in the last 17 years.

I Bonds are a unique investment, one of the safest in the world, because they are backed by the U.S. government and provide protection against official U.S. inflation, no matter how high it rises. I Bonds earn tax-deferred interest, are free of state income taxes, can never lose a cent of value and have a flexible maturity date.

Purchases are limited to $10,000 per person per year, unless you add to holdings through gift-box, trusts, or business-owner strategies. So it makes sense to buy nearly every year, but especially when the fixed rate is appealing, as it is today. I consider I Bonds a cash-equivalent investment. Hold them for one year and cash out with a three-month interest penalty, or redeem in five years with no penalty. All the while, there is zero chance your investment will lose value.

Now that we are in the May to October purchase period, you should feel no rush to invest. If you want the I Bond issued in May, wait until late in the month, like May 28, to make the purchase. You earn a full month of interest no matter when you invest.

Another option is to hold tight until mid-October, to see where inflation has been heading and also get a reading on the next fixed rate, to be reset November 1.

I made my I Bond purchases earlier this year, so I am done. Let me know what you are thinking in the comments area below.

Update on EE Bonds

The Treasury set the new fixed rate for EE Bonds at 2.70%, up from the current 2.60%. It also maintained the doubling period of 20 years, meaning that an EE Bond will earn an effective rate of 3.53% if held for 20 years. This compares with a the 20-year Treasury bond, currently yielding 4.66%.

It is hard to make a case for EE Bonds as a short-term investment (especially because of the three-month interest penalty for redemptions before five years) or long-term holding (because you can do much better with a Treasury bond.)

If short-term interest rates fall dramatically before November (unlikely) the EE Bond could begin to look attractive. Otherwise, this savings bond is a non-factor.

• Confused by I Bonds? Read my Q&A on I Bonds

• Let’s ‘try’ to clarify how an I Bond’s interest is calculated

• Inflation and I Bonds: Track the variable rate changes

• I Bonds: Here’s a simple way to track current value

• I Bond Manifesto: How this investment can work as an emergency fund

* * *

Follow Tipswatch on X (Twitter) for updates on daily Treasury auctions and real yield trends (when I am not traveling).

Posted in Cash alternatives, I Bond, Inflation, Retirement, Savings Bond, TreasuryDirect | 43 Comments

Countdown to the I Bond’s rate reset

Posted on April 27, 2025 by Tipswatch

April 30 update: I Bond gets a new fixed rate of 1.10%, composite rate of 3.98%

By David Enna, Tipswatch.com

Sometime on Wednesday, April 30, the Treasury is likely to unveil its new fixed, inflation-adjusted and composite interest rates for the U.S. Series I Savings Bond. In the past, using reliable analysis methods I could tell you:

The new inflation-adjusted rate will be 2.86%, up from the current 1.90%.
The fixed rate will be 1.10%, down from the current 1.20%.
The composite rate, which combines the fixed and variable rates according to a set formula, will be 3.98%, up from the current 3.11%.

I think these will be the most likely results for I Bonds purchased from May to October 2025. In fact, I am fairly confident these will be the results, but not 100% confident. There are too many uncertainties in Washington these days for certainty.

Inflation-adjusted rate

Of these three, the inflation-adjusted variable rate of 2.86% is a certainty. It is based on six months of inflation from October 2024 to March 2025, which ran at 1.43%. That rate is doubled to reach the variable rate of 2.86%.

The fixed rate

The Treasury has no announced formula for setting the I Bond’s fixed rate, meaning there is no calculation required by law or regulation enforcing the process. It is up to a decision by Treasury officials. However, I Bond watchers have settled on a forecasting tool that seems to work: Apply a ratio of 0.65 to the average 5-year TIPS real yield over the preceding six months. This formula has worked without fail at least since 2017.

On Friday I updated my 5-year real yield data from the date of the last reset on November 1, 2024, to the close of April, 25, 2025. The data predict the I Bond’s fixed rate will fall to 1.10% at the May 1 reset:

The I Bond’s fixed rate is always set to the one-tenth decimal point and that means the result of the 0.65 ratio calculation has to be rounded, which results in a projection of 1.10%. This has been the running result for more than a month and won’t change in the few days before the reset.

However, there is no way to be sure what formula, if any, the Treasury will use to set the new fixed rate. I think the result will be 1.10%, but this is not certain. This week’s reset could jumble everything. I hope that won’t happen.

The composite rate

The I Bond’s composite rate isn’t calculated by simply adding the variable and fixed rates. The Treasury uses a formula that adjusts for compounding factors of the fixed rate:

[Fixed rate + (2 x semiannual inflation rate) + (fixed rate x semiannual inflation rate)]

So if my prediction of a fixed rate of 1.10% and inflation rate of 1.43% are correct, the new composite rate calculation will look like this:

0.011 + (0.0286) + (0.0001573) = 0.0397573

Rounding gives you 0.03976. Turning the decimal number to a percentage gives a composite rate of 3.98%.

I believe this will be the result of the May 1 reset, but I cannot be 100% certain. The U.S. Treasury is currently undergoing an overhaul, including cuts to employees in the Bureau of Fiscal Services, which oversees the savings bond program. From an April 10 article on Govexec.com:

The Treasury Department has begun slashing some offices as part of President Trump’s efforts to reduce the federal workforce, adding several divisions of the Bureau of Fiscal Service to the cut list.

The department is outsourcing the work at the bureau’s Servicing of Savings Bonds, Debt Cross-Servicing Program and Paper Check Printing and Ancillary Services offices. The exact number of employees impacted was not immediately clear but multiple employees familiar with the matter expected it to be hundreds.

An investment quandary

There is still time — but urgently short — to buy an April 2025 I Bond with a fixed rate of 1.20% and a composite rate of 3.11% for six months, before transitioning to a composite rate of 4.08% for the next six months. A purchase in May is likely to earn 3.98% for the first six months, and then an uncertain rate for the next six months.

A higher fixed rate is always a positive, but in this case 10 basis points doesn’t make a huge difference, especially since buying in May gets you a higher starting variable rate. I consider this decision a toss-up, as I wrote in my ‘I Bond Buying Season‘ article.

To purchase an April 2025 I Bond, I highly recommend placing your order on Monday, April 28, to give it time to clear the Treasury process. Purchases on April 29 will also likely be successful, but a purchase on April 30 will be getting the May issue with new rates.

Update: To demonstrate this, on the morning of April 30 I entered a test I Bond order for purchase on April 30 and this is the result:

Purchasing in April results in the most certain result for the investor: A permanent fixed rate of 1.20% and a composite rate of 3.11% for six months and then 4.08% for six months.

If you decide to wait until May, I suggest waiting until late in the month, like around May 28, to make the purchase, since you will earn a full month of interest no matter the date you purchase.

Wait until October?

Once you enter the May to October buying period, you are assured of getting that rate for a full six months, so delaying a purchase until October is fine. Why do that? Because we are seeing high volatility in Treasury yields and could potentially experience a combination of higher inflation, higher budget deficits, a looming debt-limit crisis … and on and on.

Interest rates could fall by October, but that won’t affect your I Bond purchase. The new composite rate will stay in effect until October 30.
Or interest rates could soar higher, and then a November purchase may look more appealing, because the fixed rate could rise.
Or … nothing much will happen to interest rates and you could simply buy in October.

The risks of waiting

The Treasury this week could decide on an oddball, below-expectations fixed rate of 0.50%, with nothing to say about why. (It never explains these decisions.) That is very unlikely to happen, but it could happen.

Or, Treasury could eliminate new purchases of savings bonds entirely, as it did last year with paper I Bonds and payroll-deduction purchases. Again, this is very unlikely.

If things happen as we expect, with the fixed rate set at 1.10%, waiting is a fine move. But there is an air of uncertainty … which will be cleared away on April 30 — or possibly May 1 if Treasury reverts to its old announcement policy.

Of course, I plan to post the rate news on Wednesday (or possibly Thursday) as soon as I get it. The Treasury doesn’t follow a specific schedule for this. It may post the new rates Wednesday morning (because purchases on Wednesday will get the new May rate) but it may not update informational pages until Thursday.

FYI: I focused this article on future rates and didn’t attempt to explain the investing purposes of I Bonds or their intricacies. You can find a lot of that information in these links:

• April 11: Welcome to the I Bond ‘buying season’

• April 3: My I Bond fixed-rate projection just fell to 1.10%

• Confused by I Bonds? Read my Q&A on I Bonds

• Let’s ‘try’ to clarify how an I Bond’s interest is calculated

• Inflation and I Bonds: Track the variable rate changes

• I Bonds: Here’s a simple way to track current value

• I Bond Manifesto: How this investment can work as an emergency fund

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