Steady Bank Rates Belie Erratic Interest Rate Environment

Savings account interest rates have been stuck in a rut, languishing at around the 1.50% level. This lack of action would make you think there was nothing going on with interest rates, if not for the erratic behavior of Treasury yields over the past week.

10-year Treasury yields slid to their lowest level in nearly five months last week — and then abruptly turned around and rose by 20 basis points in just two days.

Bank rates are not directly subject to market fluctuations, and therefore have presented a calmer front. They are not likely to react until Treasuries break out of their relatively narrow up-and-down range, and start to show a sustained trend in one direction or another.

The weakness of interest rates for most of last week was odd at a time when the markets were generally showing optimism about the economy. Another subplot was concern about the U.S. dollar. This was credited with boosting the price of gold to new highs, but logically this should have given Treasury yields more of a boost at the same time.

The paradox, then, is that interest rates are both erratic and directionless, so for all their short-term gyrations, they haven’t actually moved very much in recent weeks. What could force a change? It’s by no means a guarantee, but one possible catalyst could be the Consumer Price Index figures for September, due to be released later this week. A hint of inflation could force interest rates to make a more meaningful adjustment.