Watching for Movement in Bank Rates
December 28, 2009
The month of December has seen significant upward movement in Treasury bond yields, with some rates moving up by as much as 50 basis points in the first four weeks of the month. So when will this start to influence savings account rates, money market rates, and CD rates?
Certainly, with many bank rates languishing around the 1% mark, a 50 basis point jump would be a welcome addition. While bank rates aren't obliged to follow every move of the Treasury market, Treasury yields are often a more immediate indicator of changing trends than Federal Reserve interest rate policies. The more Treasury yields move, the more it indicates strong conviction that underlying economic forces have changed. In turn, this also means a greater likelihood that both bank rates and Fed policies will follow along.
If you are waiting to see all of this trickle down to bank rates, here are three things to watch.
- Look for movement at the short end of the Treasury curve. Most of the action so far has been in long Treasuries, but bank rates have more in common with short-term Treasuries. When those rates start to move appreciably, it could be a sign that bank rates won't be long in following.
- Follow savings and money market accounts especially. Longer-term CDs may seem to have more in common with the longer Treasuries that have seen the greatest rise in yields, but until new trends are well-established, banks may be slowest to change rates that represent a long-term commitment.
- Watch individual banks as well as averages. Banks will respond at different times, so besides watching how average rates change, be sure to follow Money-Rates.com for movements in individual bank rates, because these will be the first to change.
