Multiple Signs Point to Increased CD Rate Volatility

They seem like unrelated stories, and none has really grabbed leading headlines:

• China proposes a global currency as an alternative to the dominance of the U.S. dollar
• Oil prices surge by more than 40% in less than four months
• Treasury yields add nearly a full percentage point since mid-March

As isolated as these stories may seem, they all add up to one thing: the prospect of increasing volatility in interest rates for certificates of deposit and other bank deposit accounts.

The first story was widely dismissed as not being a serious threat to the U.S. dollar, but consider it a warning shot across the bow. Whether it is via a proposal like China’s or other means, if the U.S. budget deficit continues to spiral out of control, global investors and financiers will eventually vote with their feet.

As for the bounce in oil prices, it is just a reminder of how unusual the mild deflation of the past year has been. Just as oil led general prices on their way down, it will now put upward pressure on consumer prices.

The third story — rising Treasury yields — is really a reflection of the first two. Falling confidence in the U.S. dollar and a revival of inflation concerns are bound to drive Treasury yields higher.

Will this result in higher CD rates? Keep your eyes open, because changes can be fast and furious in this type of economy.