CD Interest Rate Summary October 1, 2009

Treasury rates dropped modestly Wednesday, September 30 which was the last trading day for the month.  Rates were not only down slightly for the day, but were down for the month as well.

At the close of Wednesday the six month Treasury rate moved lower by one basis point or 1/100 pf a percent from 0.19% to 0.18%.  The one year interest rate fell by an equal amount, dropping from 0.41% to 0.40%.  The five year Treasury was down by three basis points pushing the yield down to 2.31%.  The ten year Treasury rate stayed even, holding the rate at 3.31%.

For the month, the six month Treasury lost six basis points from a starting rate of 0.24%.  The one year Treasury was down three basis points having started the month with a yield of 0.43%.  The five year shed eight basis points moving from 2.39% to yesterday’s closing of 2.31%.  The ten year Treasury rate was down by nine basis points for the month moving the yield from 3.40% to 3.31%.  The drop in yields is rather significant in a month where the stock market rose appreciably and the U.S government increased the supply of debt markedly.

Interest rates have stayed low while the market has absorbed a tremendous amount of supply of Treasury securities.  While market participants regularly discusses the potential for future  problems with a heavy supply of Treasury securities that will have to be sold and the interest rate at which buyers will keep absorbing these securities, the big picture shows that this supply of Treasury debt instruments is far from over. 

Our monster federal deficits are going to run for sometime.  The deficit is going to be over $500 billion for at least 5 years.  That means existing Treasury debt has to be rolled over and new Treasury securities have to be issued until….no one knows.  Obama plans on getting the deficit down to $500 billion in four years.  A constant $500 billion + in new Treasuries each year.  Hard to fathom how the market will absorb that.

The deficit projections are also quite rosy in our view.  Today we are watching the stock market fall at the open over news that unemployment claims rose by 17,000, in the week ending Sept. 26.  The advance figure for seasonally adjusted initial claims was 551,000, an increase of 17,000 from the previously released figure of 534,000 which was revised upwards.  The significance of these figures is that businesses are not hiring, not even close.  More people are being laid off than are being hired by a measurable margin.

On top this, consumer spending jumps slightly in August, as expected.  But this jump is driven by the cash for clunkers government bail out.  Today’s figures show that September auto sales are at a pace of 9.22 million units per year down from August’s inflated cash for clunker figure of 14.99 million.  A Ford executive expects sales to keep growing.  Mulally, the Ford CEO, expects sales to hit 11 million in 2009, 12.5 million in 2010 and 14.5 million in 2011.  I forecast that he is booted out of his job in mid 2010 when auto sales are no where near those figures. 

In addition, consumer spending overall is dead and the consumer still has to fix their balance sheets.  No matter what the pundits want to believe the stores are not showing an increase in sales.  Without jobs and spending there is no recovery.  Just a flat lined economy.  Now this will keep money in Treasuries, driving down their rates and keeping a lid on all interest rates including bank rates and specifically CD interest rates.

As always, there are pockets of investment opportunities in bank CD rates.  Two year term CD rates are becoming competitive.  Many regional areas still have bank offering CD rates well above the national average.  Review your needs and look over the enclosed CD rate tables, both national rates and state CD rates, and find the best bank rates for your needs.

Recovery – my ass.  And I am an optimist.  I am looking for land in China.  Maybe near the giant reservoir created with the construction of three gorges dam.  Must read Das Kapital to get a grip on this whole communism concept.  They tell me the Chinese are still communists.

Tags: bank CD rates, bank rates, CD interest rates, CD rates, consumer spending, interest rates, investment, rates, treasury rates, Treasury securities, unemployment

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