CD Rates and Treasury Rates October 8, 2009

Rates on Treasury securities were measurably lower on the close on Wednesday.  Six month CD rates dropped by just one basis point or 1/100 of a percent pulling the yield down to 0.14%.  The one year Treasury was lower by a more substantial three basis points, leaving the yield at 0.34% at the end of the day.  The five year Treasury dropped a rather startling nine basis points pushing the interest rate down from 2.25% to 2.16%.  The ten year Treasury rate moved lower by six basis points bringing its yield down to 3.21%.

The one year Treasury continues to sit at the lowest rate for the year while the ten year is at the lowest rate since May.  The ten year Treasury started the year with the yield hovering around 2.50% when the one year was at 0.40%. 

The drop in rates in the Treasury market can certainly be seen having an influence in CD rates.  Since the start of 2009 bank CD rates are down across all maturities but the drop is significantly more pronounced on the short term CD rates.  Just since mid March, the average interest rate on the five year CD has been unchanged, remaining at 3.40%.  The average CD rate of the best six month CD rates has dropped considerably.  In March 2009 the average CD interest rate of the six month term bank CDs was fluctuating around 2.15%, this week the average is at 1.67%. 

The primary reason we watch the Treasury market is to look for clues on the direction of bank CD rates.  When the short term Treasury rates trend lower, as they have in the second half of this year, we have seen correspondingly lower CD rates.  And as long term Treasuries moved higher we can see that there is resistance for five year CD rates to go lower and in fact we have seen pockets of rate increases in the five year term bank CDs.  this certainly not a recommendation to buy long term CDs it is just a review for those readers who have questioned the relevance of the daily review we run on Treasury rates. 

Treasury securities are more liquid and fluid market.  Short term movements in the Treasury market are not likely to impact CD rates but discernible trends or rate changes that last a few weeks or more are likely to have a direct impact on bank CD rates.

Tags: bank, bank CD rates, bank CDs, CD interest rate, CD rates, five year CD rates, interest rate, rates, six month CD rates, treasury rates

This entry was posted on Thursday, October 8th, 2009 at 9:59 am 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.