Bank Rates September 18, 2009

Well, Jim Cramer of CNBC has said it’s time to get out of Treasuries.  On his show last night he stated that it is time to get out of government securities and sell long term Treasuries or those with terms of ten years and longer.  Of course, that’s Jim’s opinion.  There was an article on Bloomberg dated September 16 that stated Bill Gross at the Pimco Funds has increased their holdings of government securities to 44% of assets in the Total Return bond fund, it’s highest level since 2004.

Yesterday, the yield curve flattened slightly.  After Jim’s talk about the terrible value of long term Treasuries, the rates on the long end moved down as buyers bid up the price while the short term Treasuries remained unchanged to modestly higher in yield.

Three month and six month Treasury rates were unchanged at the close of business Thursday.  One year Treasury increased two basis points or 2/100 of a percent to close with a yield of 0.40%.  The two year Treasury rates dropped three basis points, closing at 1.03%.  Five year Treasuries were lower by five basis points to end the day at 2.41%.  The ten year bond shed six basis points off the yield bringing the rate down to 3.42%.

Though the yield curve flattened slightly, the trend has been for a steeper curve which over time will likely influence bank CD rates.  This means that investor can expect short term CD rates to remain low while long term CD rates should rise.  Unfortunately, even with low expectations regarding economic activity that usually leads to low bank rates, the large budget deficit has been steering the consensus view to shy away from any long term fixed income investments including CD interest rates. 

Once the Fed stops buying Treasuries and then slows the purchases of mortgage bonds we will start to get a better feel on the real value of Treasury rates and the equilibrium level of interest rates without government intervention.

Tags: bank CD rates, bank rates, CD interest rates, CD rates, interest rates, rates, treasury rates, yield curve

This entry was posted on Friday, September 18th, 2009 at 9:53 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.