don't know about the 6%

"The shocking surge in inflation early in the summer should keep interest rates on I Bonds sizzling during the rest of 2022. Right now, it's possible based on some inflation forecasts that the next I Bond rate to be announced on Nov. 1 could soar above 10%. Think about that one"

I am just quoting Barron’s article and Seeking Alpha. Both predictions are in the area of 6 percent. But I won’t frown on 10 percent or better November will tell the story

stinkypete, it will be in all likelihood somewhere between 6 and 7.25 percent.

By Nov 1, 30 year t bonds will most likely be over 4 percent.

Again, I'll show my complete financial ignorance to ask why a short term I bond would have a higher rate of gain than a long term bond?

Thanks Steven 49er

Yotetrapper30. That ? Is for the more experienced investors on here.

Do you know the differences between the them?

Go to Treasury Direct website and check out Series I rates and terms section. It gives the 6 month composite rates for the last 22 years. Never been below 9% and has been as high as 13%.

Angela, bonds are tricky and way above my pay grade. But they are simple as well lol, it depends on if one is investing or saving. There is a difference.

Angela, I'll start with the easy one. I bond rates are tied to inflation. There is a formula that uses the CPI-U for the six-month period prior from the date the bond rate is set. An I bond isn't a short term bond so to speak, it's a 30 year bond. What is short-term is the interest rate, it's recalculated every six months per the formula. Like other bonds, they can be sold before maturity with stipulations. You have to hold them for a year before you can sell them and when you do you'll forfeit the previous three months of interest. After five years, the interest penalty goes away.

What you are referring to longer-term bonds and how the rates are figured is way above my pay grade. The short answer is the rates are fixed at the time of auction, which is why they are lower. Even though a 30-year I bond is paying 9.6 percent today doesn't mean the overall yield will be higher than a 30 year fixed that is paying 3 percent at the time of maturity. Hopefully, Ken chimes in and can explain some of the nuances of the bond market. I need to do some serious reading on it.

Want to really get confused? A fixed bond doesn't generally sell for the face value at the time of auciton. A $1000 face value 30 year bond may sell for say 900 dollars yet the coupon rate is figured on the face value changing the effective yield rate.

Your above statement is somewhat misleading, composite is not the same as cumulative.

https://www.treasurydirect.gov/indiv/research/indepth/ibonds/IBondRateChart.pdf


Here is where I bonds purchased today really fail IMHO unless a person doesn't believe inflation rates will fall. The formula for I bonds is a fixed rate plus double the semiannual inflation rate. The fixed rate never changes after the bond purchase, todays fixed rate is zero. Let's say we fall into a deflationary period. The interest for that year on the bond purchased today will be zero.

I am only going to talk about bonds in general. Not I bonds.

Your question is a very good one and you have touched on a situation that CURRENTLY exists but is abnormal.

You have no doubt heard the term "yield curve" . This is nothing more than a graph. The vertical axis is in percent and the horizontal axis is time.

The normal yield curve shows a line slowly rising from left to right. That is, the further out in time you go, the greater percentage (yield) you will earn on the investment. This is true for almost everything because money has time value. As you project further into the future there are more uncertainties and unknowns, so investors logically demand a higher return on their investment.

This situation is called "contango".


The opposite is what we see now. We have an "inverted yield curve". This happens when there are more uncertainties in the immediate future than are expected over the long term

So short term yields are higher than long term yields. This type of yield curve often indicates a recession in the near future.....but not always.

It is called "backwardation".



So when we think about where the world is today, it makes perfect sense that most people think the future will (hopefully) be better than the present. There is more risk right now than is likely at some point further out in time. The Ukraine situation may resolve, the price of oil may continue to fall ( although that is a function of the dollar continuing to crush all other currencies), congress may change hands in November, China's politics may change because of their economic difficulties, Putin may lose his job...supply chain issues will improve, this administration may get hamstrung by the elections and be unable to spend more money.

So there are a lot of hopeful possibilities. Some may actually happen.


This whole subject of contango and backwardation also involves the difference between the "spot" market price and the "futures" market price for a given asset at any point in time, but that discussion will only complicate things for us at this point.

As Steven said the bond market really is simple but complex. Most people get confused because bond prices move the opposite direction of bond yields....but that makes perfect sense because it is basically a simple percentage calculation.

Lets ignore daily price fluctuations and trading in & out of bonds. Lets say you buy a 1000 dollar face value US treasury bill that matures in 1 year. You intend to hold it that entire year.
Just made up numbers here............lets say you pay $900 for that Tbill. One year from now the treasury pays you 1000$ You have made $100 on a $900 investment or...11% roughly.

But suppose, during that year the Fed REDUCES interest rates and the new Tbills are only paying 5%. The PRICE on those new Tbills would be around $950. You still own that Tbill that is paying 11%

Logically, people should be willing to pay you more than you paid initially to buy your Tbill so that they can collect the higher yield. In fact, the PRICE of your Tbill is now up around $950. If someone paid 950 they would only receive 5%. This is just to try to show the relationship between the price of a bond and the yield of a bond. It's just simple math.

This is what drives bond trading world wide. The change in price. If you can buy a bond that is yielding 8% and hold it until the Fed starts lowering rates in the future..the price of that bond will go up . That is the objective. How much the price changes is a matter of duration....time to maturity. Long term bonds will fluctuate more than intermediate term etc.

Generally, a guy doesn't want to buy bonds in a rising rate environment because the price of the bond you buy will continue to fall as long as rates continue to rise. That doesn't matter at all if you hold the bond to maturity.

We also have to factor in inflation. If inflation continues at this rate or even slightly lower........do you really want to tie up money for a longer period of time ? Better to stay short term and keep rolling out as your bonds mature. That way you have liquidity to re-invest in a higher yield bond a few months later.



If you are really interested in learning more about bonds, there are plenty of resources out there.

But just for us hayseeds, it would be good to understand the terms involved.

Price, rate, yield, duration, maturity. For starters.


None of this is by any means a comprehensive discussion of the subject... nor a recommendation to make any kind of investment.

There may come a time in the future when a bond investment might make sense for SOME individuals. Don't forget money market investments. While they have been terrible for the past few years, the increase in short rates have started money market returns moving up. They also provide instant liquidity and some even carry FDIC guarantees

Apologies for going on & on in a discussion that generally causes eyes to glaze over.

Thank you Ken. Much appreciated on the explanation.

I am past glazed. But you know. It doesn’t take much for me. I am still using flash cards to memorize.

Thanks, both of you.

The new rate comes out in a couple weeks. I predict ~3.5% variable

Keep in mind that the government is known for fudging inflation numbers. So I bond yields are going south.

I put some in when rate was at high.

While the rate will go down for the next six months, it's important to remember that profits on the I Bonds are exempt from state income taxes. That increases your actual profit at whatever your marginal state income tax rate is. Only a few states do not have state income taxes. With the current increase in fuel prices, I foresee a bump in the inflation rate yet again in the near future. Everything usually goes up when fuel increases in price. That's my story and I'm sticking to it.

I'm not convinced I bonds are as secure as they are made out to be. If they were in the private industry market, they would be considered "junk bonds" and the company would be in receivership.