Certificate of deposit rates continued their multi week descent with the week of June 12, 2009 ending on another down note.   The average of the best national bank CD rates dropped for all terms with the exception of the long term, five year CD rates.  Though mortgage rates rose rather substantially for the week and there is definitive undertone in the credit markets of future rising rates, Treasury yields moved in tandem with CD rates and turned lower for the week. 

CD rates have been heading down for several weeks this year and despite the fact that the forecast seems to be calling for higher rates, these higher rates may not arrive any time soon for bank CD investors. 

The credit markets have shown signs of improvement as indicated by the slow reduction in the Libor rate over the past few months as well commercial paper rates.  An improving credit market is coinciding with an improved banking industry.  The steeper yield curve, alluded to in last weeks summary, will certainly help the banking industry further.  This unfortunately all leads to a banking environment that is in less need of high rate CD deposits.  Therefore, until competing interest bearing investments rise high enough and quantifiable levels of inflation move in to town, banks are not going to be as aggressive on their CD rate offers in the near future. 

The average of the best six month CD rates declined four basis points or 4/100 of a percent to end the week at 2.03%.  The average for the one year CD rates took a bigger hit, slumping seven basis points to 2.38%.  The two year CD rates fell an almost equal amount, retreating six basis points to end the week at 2.61%.  The five year CDs fought back this week by rising slightly from 3.52% to 3.55%.

The low bank rate setting will change once Treasuries and related interest bearing securities rise high enough to force CD rates higher, which for now, makes investing in long term CDs a risky investment choice.  With some local banks and national bank CD rates measurably above the average rates, short term CDs combined with the current low levels of inflation is still not all that bad an investment alternative.

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