Flicker of optimism generates little momentum for money market rates
August 18, 2010
The wait for higher money market rates, CD rates and savings account rates is largely a matter of monitoring the economy's pulse. However, it will take more than a flicker of strength to move bank rates.
Yesterday, the stock market rallied strongly, gaining back some of its steep losses from last week. All in all, the stock market isn't too badly off--it's down about 10 percent from its high point for the year, but off only a couple percent so far in 2010.
Bond yields also pushed higher yesterday, but they've been much more beaten down than stocks. Ten-year Treasury yields began 2010 above 3.8 percent and peaked at around 4 percent in early April. Since then, though, it's been just about all down hill, with 10-year Treasury yields having to rally yesterday to get back above 2.6 percent.
The sustained slump in long bond yields since early April indicates that the markets believe interest rates will remain low for quite a while longer. Bank rates are unlikely to rise much until bond yields have been higher for a sustained period of time. As pulses go then, yesterday's flicker of optimism barely registered.
Average bank rates remain well below half of one percent, though the best CD rates are well over 1 percent, as are the best money market rates and interest rates on savings accounts. Again, getting them moving will take more than a flicker of optimism -- it will take a steady stream of evidence that convinces the financial community that the economy's pulse is gaining strength.