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Series I bonds rise in popularity as inflation hits 9.1%

Wells Fargo Investment Institute Head of Global Finance Brian Rehling joins Yahoo Finance Live to discuss Series-I bonds, market uncertainty, and hedging portfolios for inflation.

Video Transcript


- While the data this morning did confirm high inflation in the United States, so the question for retail investors is there a true inflation hedge. Well, Series-I for inflation bonds might be the answer, but there are some catches. Joining us now with more, Brian Rehling, head of Global Fixed Income strategy at Wells Fargo Investment Institute. Great to have you on the show, Brian.

Look, there's been a lot of interest in these. We saw on social media. Some people saying they wish they had, like, 20 kids that they could get 20 of these types of securities. Just wondering, what are you seeing in terms of the demand for these types of things and are they indeed a good investment in this inflationary environment?

- Yeah. I'm getting a lot of questions about them, a lot of demand. I think they're a good investment for the right situation. As you mentioned, there is a lot of caveats with them. But they do pay the inflation rate, nothing more, nothing less, just every six months. Today, obviously, that's quite high. So that can be attractive for some investors, for sure.

- So can you just walk us through exactly how these securities work? Because you can't buy them in the secondary market, you can only buy up to a certain amount per person in your household. So what are the catches to this? Because I also understand that it's not like you could just throw the money into this, get the above 9% yield, which a lot of people are finding attractive right now, and then just dip.

- Yeah. No, that's key. Yeah, so the catch is think of them kind of like the old E bonds, right? You used to get the savings bonds as kids. So these are kind of the same thing, only they just adjust with inflation. So there are a lot of caveats, you're right. They don't trade in the secondary market. The big one is you can only buy $10,000 per person per year. So if you have a fairly sizable portfolio, they're not going to help a whole lot in terms of with inflation.

Also, when you want to cash them out you have to wait at least 12 months before you cash them out. And if you cash them out before five years is up, you basically have to forfeit three months of that interest payment. And, of course, that inflation rate that you're getting paid into just every six months, if inflation moves lower over the next year, as would be expected, your rate is going to start decreasing as well.

- So, I mean, that's a lot of caveats that you just laid out, Brian. I mean, how do you think investors should be thinking about this in terms of their broader strategy? I mean, I think a lot of people would be happy to take the 9% yield right now, but that's not necessarily that immediate return.

- Right. Listen, if you have $10,000 sitting around that would be in a short term CD, you're not going to need it for the next 12 months, it seems kind of like a no-brainer up to the $10,000. Is it worth the trouble for the return? I guess each person has to decide that for themselves.

- Now, is there any sort of strategy here? Because you're starting to hear some conversations, I mean, certainly the CPI number so far doesn't suggest we've peaked yet. But if you do see inflation decline, then the yield when they reset the inflation number, I believe, in September would mean that you would get a lower return on that, right? So, I mean, is now a better time to get in than later?

- Yeah. I mean, sure. I mean, now's a good time to get in. And, like I said, if you can lock up your money for a year, it's a very nice return. You're going to have a very hard time finding that type of return anywhere that's essentially government guaranteed. Now, even if you have to give up the three months of interest payment a year out, so you're only getting nine months of that inflation adjustment which is, of course, quite high now, that's quite attractive for many investors.

- All right. And, again, you cannot buy these in the secondary markets, you can't get them on Robinhood, you have to go straight to Treasury Direct for that. But Brian Rehling, Head of Global Fixed Income strategy at the Wells Fargo Investment Institute, thanks for jumping on the show this morning. Appreciate it.

- Great. You bet. Thanks for having me.