Interest rates showed little movement during the week. This is a week in which the government of Greece rushed to convince the EU and the financial markets that it will get its budget and debt under control as interest rates on Greece’s borrowing costs jumped radically over the fear of default and the Fed released a statement after the FOMC held its regularly scheduled meeting for January 26-27 and the advanced figures for fourth quarter GDP was released. Not to mention, Apple released its latest product the iPad.
Bank CD interest rates had fallen every week since the start of this year. Numbers in the selectcdrates.com survey that will be published this Sunday evening January 31 indicate further reductions in rates, albeit at a very modest level.
Treasury rates were little changed for the week in spite of all the announcements. The six month Treasury rate moved from 0.14% to as high as 0.16% and as of this morning the rate is back at 0.14% again. The one year Treasury rate closed last Friday at 0.30% went as high as 0.33% and is settling back down at 0.30% at 10:30 today. The ten year Treasury bond inched up a little higher, closing last Friday at 3.62% then rising as high as 3.68% on Thursday then moving down to 3.64% at the time of this print.
On January 27, 2010 the Federal Reserves’ Federal Open Market Committee meeting released a statement regarding the economy and outlook for interest rates and inflation. The key phrase in the press release regarding the short to mid term outlook for rates stated, “The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.”
Some economic gurus focused on the statement regarding the Feds purchase program on mortgage backed securities, since it is believed these purchases are providing a significant cap on how high mortgage rates will go and once the purchases end, mortgage rates will soon rise. The Fed’s statement on this program included the following, “the Federal Reserve is in the process of purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. In order to promote a smooth transition in markets, the Committee is gradually slowing the pace of these purchases, and it anticipates that these transactions will be executed by the end of the first quarter.”
On Friday morning the Bureau of Economic Analysis, a division of the U.S. Department of Commerce, released the advance fourth quarter GDP production numbers. The data showed that the output of goods and services produced in the United States increased at an annual rate of 5.7 percent in the fourth quarter of 2009. A fairly impressive figure, however the stock market is barely positive after the release and the bond market which should show a decline in price and rise in interest rates when economic activity increases is not moving, the ten year remains at a yield of 3.64%.
Interest rate markets did not appear to be concerned with the Feds winding down of the mortgage securities purchase program or the increase in economic activity. With the Fed clearly stating that the Fed Funds rate will remain low and that inflation is not a concern, an increase in CD rates and bank rates seem highly unlikely in the near term.
Tags: bank rates, CD interest rates, CD rates, federal funds rate, Federal Open Market Committee, GDP, interest rates, rates, ten year Treasury bond, treasury rates
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