There was large thud heard coming from certificate of deposit rates this week.  For the week ending June 5, 2009 the average for the top certificate of deposit rates available nationally were lower across the board.  This week the average for the top ten CD rates experienced there biggest weekly loss since the start of the year. 

The average for the best five year CD rates fell from 3.61% to 3.52%.  The best two year CD rates dropped to 2.67% from 2.74%.  The highest one year CD rate average went to 2.45% from 2.51%.  In the tables for the best CD rates there was an anomaly in the six month CD rate category which increased slightly.  The average of the best six month CD rates rose a small amount, from 2.05% to 2.06%, due to the addition of Wilshire Bank which is promoting an unusually high rate of 2.52%.  Without that bank CD rate addition, six month CD rates dropped along with the other CD maturities.  The six month CD rates without the one outlier bank CD would have experienced a reduction to 2.01% from 2.05%.

The rate reduction runs in the opposing direction to activity in other segments of the credit markets.  FHLMC’s weekly mortgage survey indicated that 30 year mortgage rates rose for the week from 4.91% to 5.29%, the highest rate this year.  The 15 year mortgage rose by an equivalent amount but has not reached the high point of the year.  US Treasuries also rose by substantial amounts for the week with the two year, five year and ten year closing at their highest levels for the year.  The six month Treasury rose by six basis points or 6/100 of a percent to end the week at 0.35% while the one year Treasury rose 14 basis points to end at 0.62%.  These short term Treasury rates have not reached the highs seen in February and the beginning of March of 2009.

With the universal forecast for higher rates of inflation, the increase in rates in most segments of the credit markets are expected.  In addition, with the general delay or lag in bank CD rate movements combined with a stronger banking industry, a short term reduction in CD rates may not be as abnormal as it first appears.  However, with other credit market rates headed higher it is only a matter of time before CD rates should start to rise as well.  Investing in long term CD rates is certainly a dicey investment choice based on consensus interest rate forecasts and even the mid term rates could be troublesome should rates rise quickly.  Bank money market rates and savings rates are looking very alluring for the short term.

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