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5-Year TIPS Yield Leads I Bonds by 165 Basis Points

By Markets Desk · 2026-09-20 · 2 min read
A wooden desk holding a stack of paper bonds and a calculator.
Illustration: Tradingbird

The 5-year Treasury Inflation-Protected Security real yield stands at 2.55%. This figure exceeds the fixed I Bond rate of 0.90% by a significant margin.

The 5-year Treasury Inflation-Protected Security real yield stands at 2.55%. This figure exceeds the fixed I Bond rate of 0.90% by 165 basis points. The market price for TIPS reflects current inflation expectations. I Bonds lock in a rate based on past data. This structural difference creates a temporary yield gap. The gap favors the actively traded security right now.

The 5-year real yield rose from 1.46% on January 1 to 2.55% on Friday. The I Bond fixed rate remained static at 0.90% during this period. Analysts view these instruments as comparable for five-year holding periods. Both can be redeemed without penalty after five years. The immediate yield advantage currently belongs to TIPS. This advantage may reverse after the next rate reset.

Yield Gap Favors TIPS Currently

TIPS prices adjust continuously to market conditions. I Bond rates change only every six months. The current environment sees high real yields in the market. The I Bond rate lags behind this movement. A ratio of 0.65 often links the two rates. The current ratio is 0.35, suggesting TIPS offer better value. This disparity is temporary by design.

November Reset Predicted At 1.30%

The I Bond fixed rate is expected to rise on November 1. The new rate is projected to be 1.30%. This calculation uses the average 5-year real yield from the last six months. The average stands at 1.95%. Applying the standard 0.65 ratio yields the 1.30% figure. This represents a 40 basis point increase from the current rate.

Market data supports this projection. Only 29 trading days remain before the reset. Even if yields drop to 2.0%, the new rate stays at 1.30%. If yields hold above 2.50%, the rate could reach 1.40%. A 1.40% rate would be the highest since 2006. The 1.30% outcome remains the most probable scenario.

Inflation Data Drives Variable Rate

The variable component of the I Bond rate depends on inflation. September inflation data is the final input for the new rate. Gas prices have risen recently. This trend may push the monthly inflation figure higher. The variable rate adds to the fixed 1.30% base. The total composite rate will determine final returns.

Based on reporting by tipswatch.com, compiled by the Tradingbird desk.

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