When will savings and money market rates follow the rise in bond yields?

Last week, bond yields rose to their highest level in more than three months. Will rates on savings accounts, CDs, and money market accounts soon follow this upward trek?

The immediate answer is: Don't expect any dramatic changes in bank rates right away. Still, last week's move in bond market interest rates could be a step in the right direction.

What does it take to move savings and money market rates up?

On November 4th, 10-year bond yields fell to 2.48 percent, and since then, they have climbed to 2.88 percent. Will this climb of 40 basis points have any impact on savings and money market rates? To answer that, it helps to consider possible reasons behind the rise in bond yields:

• A correction in a pumped-up bond market. There have been legitimate concerns about a bubble in bonds -- speculation driving prices up and yields down. Any market that is fueled by speculation is subject to abrupt changes.
• Inflation jitters. Inflation has been unusually calm, but with bond yields this low any hint of inflation can make the bond market nervous. Of course, if rates rise because of inflation, it won't really be a win for depositors -- getting ahead of inflation is the name of the game, not simply scrambling to keep up with it.
• Signs of economic improvement. This would be the real win for depositors. Look for November's employment report, due out shortly after the end of the month, as the next substantial indicator of whether the economy is really improving.

To put things in perspective, when bond yields were last this high, bank rates really weren't all that much different than they are now. According to FDIC figures, in early August average money market rates were at 0.28 percent. Last week money market rates averaged 0.24 percent. The message is that short rates and long rates have become somewhat detached from one another.

So, long-term rates may fluctuate widely for all the reasons noted above, but until there is solid evidence of improvement on the economic front, expect short rates to remain anchored pretty much where they are.

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