Interesting Opportunity in “Series i bonds” – Government Rates Greater than 7%

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The WSJ wrote back in May 2021 of the “The Safe, High-Return Trade Hiding in Plain Sight“, which discussed Series I bonds.

Series I bonds are 30-year US treasury bonds that earns fixed interest with an adjustment to the rate to account for inflation (changes in CPI-U, semi-annually). However, they differ from TIPS in many ways. They are not marketable, they have a limit of $10,000 per person per calendar year, and taxes are due at maturity vs. on an ongoing basis. Oh, and Series I bonds interest rates cannot go below zero, unlike for TIPS. You have to buy them on an ancient looking website, though I will say the security guards looked up-to-date.

However, one issue for Series I bonds is the rate can go down if inflation cools. Right now, the “fixed” portion of interest is literally zero. So the interest is 100% made up of the inflation measures in CPI. So if CPI goes to 0%, there is potential the rate is 0%.

And if you redeem within the first 5 years, you lose the last 3 months of interest. So if you are like me, and think inflation statistics will move lower over time, then the rate you earn in a couple years may not be satisfactory.

At the time of writing, the WSJ wrote:

However, now the Series I bonds rate is much higher:

So if you held for 1 year, now the rate you’d earn would be more like 5.34%. Yes, that is “the catch”. But that is for a US government security! Literally no default risk. By comparison, look at the median corporate bond yields from 1 year+

In addition, while you can only invest $10,000 per person per year, we’re close to the end of the year, so I can stuff an extra $10,000 in there early next year. And my wife can do it. Kids can do it.


Normally I don’t think I’d write much about an “opportunity” like this but it definitely is interesting. If you’re one that thinks inflation will spin out of control, you probably are in some other “hedge” investment, but I like this as a modest hedge (though I will likely cash out early).

Personally, while I want to say I can constantly find equities that will beat this hurdle, it doesn’t seem terrible to me to have some portion of the portfolio in these I bonds. This certainly beats my cost of debt threshold on my mortgage!

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