Bank CD Rates and the Economy September 25, 2009

While the market appears to fear the potential for rising rates and rising inflation, the bond market improved with prices up and interest rates lower.  Treasury rates were lower for all maturities at the close of Thursday September 24, 2009.

The three month Treasuries fell by one basis point or 1/100 of a percent for the day to end at 0.10%.  The six month also lost one basis point to close at 0.19%.  The one year Treasury shed two basis points, ending the day at 0.39%.  The two year Treasury lost three basis points, closing at 0.93%.  The five year lost three basis points as well and the ten year was down by four basis points closing at 2.37% and 3.40%, respectively.

The treasury auctions this week showed solid demand continuing for these products with high bid to cover ratios on the two year, five year and seven year note auctions.  The NAR released sales of existing homes data that showed sales had hit an annual rate of 5.10 million which was less than expected and a decline from the prior month’s figures.  Weekly jobless claims did fall but by only 21,000 which yields 530,000 new claims for the week.  All in all, the numbers produced indicated a weak economy.  The pundits seem to think the economy is recovering and so far the stock market has certainly reflected that notion.  But, there is hardly a statistic to be found that says the consumer is spending more or businesses are hiring.

Bad economic news drives money into the Treasury market and Treasury rates along the fed funds rate set by the fed are the primary drivers of bank CD rates.  While these interest rates stay low it is not likely that CD interest rates will rise.  The only change to this dynamic is the input from inflation.  A rise in inflation will most certainly drive bank rates higher.  While the market soothsayers debate the day inflation returns the fed statement clearly noted, “…the Committee expects that inflation will remain subdued for some time.”

Stay alert, watch consumer behavior to see if purchases are picking up and keep your eyes glued to the enclosed CD rates tables on both the national bank rates and the state bank CDs to see where the greatest investment opportunity lies.

Tags: bank CD rates, bank CDs, bank rates, bond market, CD interest rates, CD rates, inflation, interest rates, investment, rates, treasury rates

This entry was posted on Friday, September 25th, 2009 at 12:52 pm and is filed under Money Rates. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.