Bond prices are back above 4%, due to inflation
For the first time in two years, interest rates on the long-awaited series of bonds, called iings, rose.
On Friday, the Treasury Department changed its rate for bonds to be purchased over the next six months to 4.03%, up slightly from 3.98%. The increase is due to uncontrolled inflation between April and September, which are the months in which the Ministry of Finance uses its monetary statistics.
David Enna says: “I’ve always been a fan of bonds as a long-term investment,” says David Ena, founder of the financial tips site Watch Tracks. Adding that to the 4.03%, short-term investors will get a nice return, too.
The bonds, available for purchase at TreasuryDirect.gov, are uniquely designed to protect savings from rising rates. They became more popular in 2022 when the rate entered 9% for the first time due to the rise of the pandemic. While rates have fallen since then, experts say government savings bonds are the only reliable hedges against inflation.
“The Bonds are a different investment, one of the safest in the world, because they are supported by the US government and provide protection from the official rise of the US,” writes his site. “It doesn’t matter how high it gets.”
How do I work bonds to fight inflation
Every six months, a portion of Ionds’ total interest income is re-factored for inflation. This is called a variable rate and is currently 3.12% per annum.
This other rate is called the fixed rate, which remains the same for the life of the I Bond, up to 30 years.
The Treasury set the new rate limit to 0.9% on Friday, down slightly from 1.10%. That means I’m buying bonds between now and the end of April 2026 will come with a fixed rate of 0.9% for up to 30 years – guaranteeing a return above the average rate.
While the dynamic price is predictable and based directly on the price increase, the rate is determined by the block box. The Ministry of Finance does not share publicly how it determines this rate exactly, but we know that it is affected by the interest rates that are considered as many other investments, and those are downwards.
However, Enna believes he has cracked the code and accurately predicted bond prices for several years. Last week, just after the Bureau of Labor Statistics released the (delayed) inflation report, it predicted the new IBIRS rate exactly at 4.03%.
Enna says that he hopes that the rate determined by the mopps will remain at 0.9% in the future, but it can lick again in May 2026 Depending on the fight of the Federal Reserve to increase the way out of forests.
Investors who want to lock in the 0.9% rate to ensure returns above par will need to buy their bonds before then.
Do I have a headache for you?
In addition to their anti-inflation design, bonds also have practical issues that investors should consider before buying.
Unlike other investment and savings accounts, the income from covered bonds is not subject to state and local taxes, and state taxes are expected only when the bonds are issued and only when the bonds are issued.
Bonds have some consequences, too. They must be purchased digitally through TreasureDirect.gov and have an annual limit of $10,000 in purchases. They must be held for at least one year, and bonds issued within five years of purchase are subject to a three-month penalty. (The paper bonds, which he once bought with tax credit money, were phased out in January.)
These sectors are why many financial experts see bonds as a long-term hedge against inflation rather than a short-term one.
Everyday savers have money market accounts, high-deposit savings accounts and certificates of deposit (CDs) to consider as alternatives.
Currently, the best market accounts and CDs offer rates as high as 4.25%. Currently, the rates for high-quality savings accounts start out at around 4.35%.
It is important to note, however, that these rates can change as often as banks do – and without prior notice. Across the Board, interest rates on savings accounts tend to fall shortly after a rate cut from the Fed, as recently announced on Wednesday.
In contrast, the full rate I Bonds (4.03%) are guaranteed for six months, and the limited rate (0.9%) is guaranteed for up to 30 years.
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