Picking up Nickels

Wednesday, October 18, 2023

September 2023 CPI-U numbers released: Hold off on I Bond purchase

The U.S. Bureau of Labor Statistics released the September 2023 Consumer Price Index (CPI-U) inflation data last week, which increased by 0.249% over the past month.

As always, now is one of the best times to consider purchasing I Bonds. The reason for this is that we now know what the rate of return for October 2023 I Bonds will be for both the first and second six month periods, which is important since I Bonds must be held for 12 months before they can be redeemed.

Using the CPI-U data from March 2023 (301.836) and September 2023 (307.789) (courtesy of inflationdata.com), we can calculate the variable rate for the second 6 month period for October 2023 issue I Bonds.

That means these bonds would earn the current rate of 4.30% (using 0.9% fixed & 1.69% variable) for the first 6 months and 4.86% (combined 0.9% fixed & 1.97% variable) for the second 6 months. In the current interest rate environment, an October I Bond purchase isn't compelling when compared to something like the 52 Week T-Bills @ 5.488% APY issued on 10/5/2023.

In my opinion, I would pass on October 2023 I Bonds and reevaluate them after the rate reset in November. Based on the spread between I Bonds and TIPS, David Enna of tipswatch.com projects that the new fixed rate will fall in the range of 1.40% to 1.70%, a nice increase over the current 0.9% and the first time above 1% since 2007. If that's the case, I'll seriously consider purchasing before the end of 2023 followed up by another potential purchase in April 2024 once the March 2024 CPI-U numbers are released.


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