Certificate of deposit rates were down modestly last week while Treasury rates continued a slow, measurable and sustained climb.  With Treasury rates finally making a continuous move upwards, higher CD rates may soon arrive. 

Of course, expectations for higher Treasury rates have been around for several months without a sustained rise in rates ever materializing and rates may once again drift down in the Treasury market.

In reviewing Treasury rates this year:  the high rate for the 6 month Treasury is 0.26% which was reached on March 18.  The 6 month Treasury broke above 0.20% on March 5th, has been at .20% only two other times this year and has now remained above that level since March 5th  to the present.
The one year Treasury has risen above 0.40% twice prior to march 12th.  Since March 12th, the one year Treasury rate has remained at 0.40% or higher, closed the month of March at 0.41% and now stands at 0.46%. .

The two year Treasury rate has followed a similar path but with a much greater rate increase.  The two Treasury has risen above 1.00% four times prior to March 19th this year and has now remained above 1.00% from the 19th of March to the end of the March.  The two year Treasury rate is now at 1.11%.

The ten year Treasury closed out the month of March with yield of 3.84%.  The ten year Treasury reached a yield of 3.84% or higher in 2009 a total of eight times, during the last week of March the 10 year closed at 3.84% or higher each day and ended the first two days of April at 3.96%.

Mid and long term rates are clearly moving higher at greater rate than the shorter term maturities.

The yield curve for US Treasury rates can provide some indication about where the market thinks rates are headed including bank lending rates and bank deposit rates such as certificates of deposit and money market account rates.

Interest rates are affected by a number of factors including Federal Reserve actions, inflation and supply and demand for loanable funds.  Inflation continues to remaining low, the Fed has continued to keep the door open for low fed funds rates and with the record level of reserves held by banks, the demand for loanable funds is not likely to put much pressure on bank rates.

Great outline for prolonged low interest rates, yet Treasury rates are rising.

One unofficial measure of potential increase of loan demand working against the abundance of bank reserves is the rise in employment measured by the increase of 162,000 jobs for the month of March combined with the observable increased demand for jobs in most metropolitan areas.  One can clearly observe more job postings in retail and moderate to low paying service sector jobs already.

Bank CD investors and savers need to review the trend in the direction of short term and long term interest rates as a reflection of where bank rates are headed.   If rates are more likely to rise in the near term, holding shorter term CDs or even more liquid bank accounts such as savings accounts and money market accounts are often the best alternative in order to have funds available to capitalize on rising rates instead of locking in low long term rates that will soon be minimized by higher alternative rates or growing inflation.  

Banks can be slow to react to changes in the markets especially during times of rising interest rates and with the FDIC closing weak financial institutions, the competition for above average CD rates is diminishing. 

Stay posted to see if this is finally a long term trend of rising bank rates and CD rates.

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