Tech leads stocks higher ahead of key inflation print

As inflation comes down, the popular I bonds trade from the past few years isn’t looking as attractive anymore.

Yahoo Finance’s Kerry Hannon reports:

It’s a good time to sell those I bonds you bought when they became fashionable two years ago amid blisteringly hot inflation, which pumped up the annualized rate to 7.12% in November 2021 and a record 9.62% in May 2022.

The lofty annual rate has since settled as inflation’s been tapped down, and the I bonds scooped up during those heady days are paying about a third of those beguiling rates, or 3.97%.

Here’s why. The I bond rate is made up of a fixed rate, which applies for the 30-year life of the bond, and a semiannual variable inflation rate calculated from the six-month change in the Consumer Price Index.

The annualized yield for the latest I bonds is 5.27% — a hefty fixed rate of 1.30%, plus the 3.97% variable rate which will reset again in May.

By contrast, the I bond fixed rate in November 2021 and May 2022 — when inflation was soaring — was 0%. That means those older bonds are now earning the current variable rate, period.

The takeaway? Redeem and reinvest.

“I personally sold my own and am advising clients to do the same,” Danielle Howard, a certified financial planner with Wealth By Design in Glenwood Springs, Colo., told Yahoo Finance. “Depending on individual cash flow considerations, we are looking at money markets, laddered CD’s, and corporate bond bullets.”