By David Enna, Tipswatch.com

Earlier this year, I think most I Bond investors were assuming that the I Bond’s next fixed rate would end up being lower than the current 1.30%, the highest fixed rate since November 2006. But things have changed.

I did a quick analysis of average real yields for 5- and 10-year TIPS from Nov. 1, 2023 — just after the last rate reset — to Friday’s close. After years of trying prediction formulas, I have settled on “average daily real yield” over the entire six-month rate-setting period as the best predictor of the Treasury’s future decision. But of course, it is not perfect.

My findings: At this point, I would guess the Treasury will hold the I Bond’s fixed rate at 1.30% at the May 1 reset, based on a ratio of 0.65 applied to the average daily real yield, with the result rounded to the 1/10th decimal point.

On Oct. 27, 2023, I posted a prediction on the I Bond’s Nov. 1 reset, showing that the 10-year real yield had averaged 1.78% from May to Oct. 26, 2023. If you applied a ratio of 0.65 to that number, you got a fixed rate projection of 1.20%. The Treasury decided on 1.30%.

In that projection, I ignored the 5-year average real yield, which was substantially higher at 1.99% from May to October 2023. Applying the 0.65 ratio to 1.99% gets you to 1.29%, which rounds to a 1.30 fixed rate. So it is clear that the 5-year real yield also matters.

Qualifications

More than two months remain before the Treasury’s fixed-rate decision, so things are likely to change, either up or down. It’s too early to say, but right now it does look like the I Bond’s fixed rate could hold steady at 1.3%, or even go higher if real yields continue climbing.

Want to do this calculation?

The process is simple, using the Treasury’s Real Yield Curves page. For the November 2023 to current day period, you will need to download two .csv files from the site. This .csv file is a simple spreadsheet you can open with Excel.

• First, use the selection box to select 2023 and click Apply. You will see a list of all real yields for the entire year. You will also see “Download CSV” as a link. Click on that and you will immediately download a .csv file with all real yield data for 2023. This link should work.
• Next, do the same thing to get to the 2024 listing and download that .csv file. This link should work for that.
• Find the files in your download folder, or wherever you saved them.
• Open the files and in the 2023 version, eliminate all data before Nov. 1. You can also delete the columns for 7-, 20- and 30-year TIPS, if you like. Then open the 2024 file and copy the date column, along with the 5- and 10-year real yield columns.
• Paste the 2024 data onto the end of the 2023 data and you now have a list of all 5- and 10-year real yields for the current period.
• Use Excel’s “sum” function to add each column. Then divide the results by the number of rows with data and you have your average daily real yield.
• Multiply each average real yield by 0.65 to get an estimate of the potential I Bond fixed rate, at that point in time. Reminder: This is only an estimate.

What this means

At this point, it still looks like the I Bond’s next variable rate could come in around 2.0%, lower than the current 3.39%. If that is true, and it looks like the I Bond’s fixed rate will hold at 1.3%, then investing in April would make sense, to lock in the current composite rate of 5.27% for a full six months.

But again, things can change. I’d continue advising holding off on I Bond investments until April 10, when the March inflation report is released and the I Bond’s new variable rate will be set. If it is going to be higher than the current 3.94%, then investing in May might be the best choice.

I’ll be updating this I Bond fixed rate projection in mid-April with more complete numbers.

• I Bond buying guide for 2024: Be patient

• Confused by I Bonds? Read my Q&A on I Bonds

• Let’s ‘try’ to clarify how an I Bond’s interest is calculated

• Inflation and I Bonds: Track the variable rate changes

• I Bonds: Here’s a simple way to track current value

• I Bond Manifesto: How this investment can work as an emergency fund

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Feel free to post comments or questions below. If it is your first-ever comment, it will have to wait for moderation. After that, your comments will automatically appear.Please stay on topic and avoid political tirades.

David Enna is a financial journalist, not a financial adviser. He is not selling or profiting from any investment discussed. I Bonds and TIPS are not “get rich” investments; they are best used for capital preservation and inflation protection. They can be purchased through the Treasury or other providers without fees, commissions or carrying charges. Please do your own research before investing.