Bank certificate of deposit rates put the brakes on this week, slowing down on their prolonged descent for the week ending August 14, 2009.  This week national CD rates didn’t increase, but as a whole their downward movement was relatively minor.  Overall, it was a mild week for activity in CD rates. 

The six month and one year CD rates or the short end of the CD yield curve, were modestly lower.  The best 6 month CD rates were untouched for the week with the average ending the week at 1.76%, right where they had started.  The one year CD rates fell modestly, closing the week at 2.04%.  The one year CD rate reduction amounted to a loss of three basis points or 3/100 of a percent week over week. 

Mid term CDs and long terms CD rates moved in opposite directions.  The average of the best two year CD rates produced a small gain for the week.  The two year CD rates ended the week at 2.36%, an increase of one basis point from the prior week. The longer term, five year CD rates were also modestly lower.  The average for the five year term CD rates dropped by two basis points to end the week at 3.36%.

While the average of the best national CD rates closed out the week mostly running in place, Treasury rates discernibly lower across all maturities.  The six month U.S. Treasury rate fell four basis points, to end the week at 0.26%.  The one year Treasury rate dropped by eight basis points to close at 0.44%.  The ten year Treasury slumped a rather substantial 34 basis points, closing Friday at 3.55%.

Questions regarding the strength of the U.S. economy are the driving force for Treasury rates, which are the closest substitute to bank CD rates.  If Treasury rates decline further, CD rates are sure to follow.  However, there has been no well defined trend in Treasury rates this year with the exception of the long end of the curve.  Short term Treasury rates have gyrated within a tight range, ending this week where they were at the beginning of the year.  Long term rates, on the other hand, are up measurably even with this this week’s significant drop in yield.  The 10 year Treasury only first crossed 3.00% in February of this year. 

Which way rates is a question left for the big gorillas to battle over, a battle that has been heating up among the competing camps trying to forecast the future course of interest rates.

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