Interest rates increased slightly during the shortened holiday week.  Volume was very light for bonds as traders were enjoying the holiday and not the trading floor, but there was enough action to move longer term rates modestly higher.  Short term interest rates were not impacted and displayed little movement on the week.  The minor drop in bond prices and corresponding rise in interest rates affected mortgage rates, long term CD rates, and even some money market rates.

The rise in long term rates while short term rates held steady resulted in the Treasury yield curve (i.e. the difference between short-term yields and long-term yields) widened during the week.  One year Treasury yields remained unchanged for the week at 0.26 percent while ten year yields rose from 2.17 percent at the start of the week to 2.25 percent at week’s end.  Financial fortune tellers hone in on these situation.

Rising rates and an increase in the slope of the yield curve is generally correlated with improving economic conditions.  Good news for the economy has been seen in falling inflation expectations especially as oil prices have dipped to new lows, better than average employment growth, expanding consumer spending, and Fed optimism regarding the economy and labor market.  In fact, the Federal Reserve continues to hold down short term interest rates through monetary policy even in the absence of the bond buying program or quantitative easing put in place by the prior Fed Chairman which ended in October.

All the attention on oil prices is noteworthy as it can provide a nice shot in the arm to the economy and have a transitory affect on inflation but oil price changes have little impact on future interest rates

The downside of this rosy economic picture for borrowers is the potential for rising long term interest rates in 2015.  The upside, savers will finally see rising savings rates and CD rates.  An expanding economy is also good for the unemployed and underemployed as the labor market tightens up.

As we continue to read the tea leaves, we can sit tight for awhile.  In the near-term, mortgage rates, CD rates and savings account rates don’t appear to be on the brink of a fast break out in any direction.

Bank rates market recap for December 29, 2014.

CD interest rates:
Composite CD interest rate index 1.171 percent
3 month CD rates 0.406 percent
6 month CD rates 0.749 percent
1 year CD rates 1.141 percent
2 year CD rates 1.340 percent
5 year CD rates 2.221 percent

Money market and savings account rates:
Bank money market rates and savings account rates 0.984 percent

Mortgage rates: 
30 year mortgage rates 3.986 percent
15 year mortgage rates 3.373 percent
20 year mortgage rates 3.761 percent
30 year jumbo mortgage rates 3.963 percent
30 year FHA mortgage rates 3.763 percent

Credit card rates:
Credit card rates for new credit card offers 13.89 percent

US Treasury rates:
Six month Treasury rate 0.10 percent
One year Treasury rate 0.26 percent
Two year Treasury rate 0.73 percent
Five year Treasury rate 1.75 percent
Ten year Treasury rate 2.25 percent

All bank savings rates and lending rates are based on surveys conducted by at the close of December 29, 2014 with all of the interest rates obtained directly from the banks within the survey.  Treasury rates are obtained directly from the Department of the Treasury.

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