Opportunities for investing in high rate certificates of deposit are still available in a variety of markets.  Florida residents for example, have a number of CDs with a range of maturities to choose forms that are appreciably above the national averages.  The best six month CD rate in Florida is over ½ percent higher than the average of the best national rates while the best five year CD rate in Florida is almost one percent higher.  The best six month CD rate in New York shows a similar spread above the average of the best national six month rates.  Likewise, the best two year CD rate in Illinois is almost ½ percent higher than the average of the best national two year CD rates.  Other states and regions display similar prospects.  However, the difference between state and national rates was aided by a reduction in the CD rates available nationally for the week ending June 19, 2009.

The average yield for the best CD rates available nationally for all maturities was lower with the exception of the five year term.  The average of the best six month CD rates, dropped by seven basis points or 7/100 of a percent to end the week at 1.96%.  This is the lowest rate the six month average has seen in the past three months.  The average for the best one year CD rates fared even worse with a reduction of eight basis points for the week to close at 2.30%.  The two year CD rates managed to temper their losses with the average of the best two year CD rates falling only five basis points to 2.56%.  The five year CD rates were able to actually stop the bloodletting.  The average for the five year CD rates increased from 3.55% to 3.61%. 

Treasury rates were mostly unchanged for the week.  The six month Treasury moved up modestly from 0.29% at the end of last week to 0.33% this week.  However, the one year Treasury started the week at 0.52% and ended at 0.51%.  The five year Treasury ran in circles, starting the week 2.81% and closing Friday at 2.82%.  The ten year Treasury moved down by three basis points to close at 3.79%.  The long rates are well off their highs of June.  The ten year had peaked at 3.98%, the five year at 2.95% and the one year reached 0.62% in the first week of June.

Mortgage rates started the year at approximately 5.00% on a 30 year, moved as high as 5.59% and settled down last week at 5.38%.  A fairly substantial one week drop in rates.  During this same time period the ten year Treasury went from 2.51% at the start of the year to 3.86% ( the 3.86% is the not the weekly close for June 19 but follows the average mortgage rate that are evaluated as of June 18 ).

The conclusion of all the credit market activity is anyone’s guess at this point.  The expectation certainly was for a prolonged increase in rates that appears to be side tracked.  The underlying fundamentals of new government initiatives that need increased borrowings to move forward would certainly be a considerable force putting upward pressure on interest rates and inflation.  The costs of AIG, CITI , GM are eclipsed by the Federal largess being distributed to the states, the continuing wars in Afghanistan and IRAQ, plans for expanding Medicare drug coverage and the list is apparently endless.  When Treasury rates start to rise from increased supply, mortgage rates and auto rates as well as all collateralized interest bearing securities will move with some limited delay.  Eventually this crowds all borrowing costs including that of the banks which in their case is CDs and savings accounts.  This is supposed to ultimately drive bank rates higher, in the future, eventually, some day?  Except…..Japan. 

Japan’s debt is almost two times its GDP.  Talk about debt supply and inflation fears.  The US debt isn’t even close, at approximately 75% of GDP.  Yet, the yield on Japan’s benchmark ten year bond is approximately 1.50%.  Fundamental analysis would conclude that figure should be much higher.  The conclusion, time to go back to school and figure it all out.

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