The Unknown Ideal

As noted previously, the past six months of consumer inflation imply that new issue I Bonds will probably be yielding at least 6.7% for the next six months, come Tuesday, and some older issues will be paying around 9.4%.

Tom Adams thinks the rates will be even higher.

Some of the older EE Bonds, which before May 2005 were pegged to 90% of a six-month average of the Five Year Treasury Note yield, will probably adjust to around 3.6% on Tuesday, given that the average close of the Fiver's yield for the past six months has been 4%. I'll continue to hold my old EE Bonds, whose earnings are still compounding nicely enough without losing principle, but I won't be buying any new ones. The earnings on these bonds haven't beaten inflation over the past year, but the long-term record of EEs in preserving purchasing power has been good.

Treasury may set the new issue EE Bond yields a little higher than 3.6%, but the newer EEs, whose arbitrarily set rates do not adjust over the life of the bond, strike me as a pretty bum deal in a rising interest rate environment. Let foreign central banks loan the Federal Government money for extended periods at low interest rates. That's not your job.