Debt Crises, Treasury Bonds, and CD Rates
April 14, 2010
In a testament to the interconnectedness of the global banking system, problems that Greece is having paying back its debts may be an indicator that higher CD rates could appear sometime soon.
When huge amounts of debt are in question as to repayment, as certainly is the case today all around the world, it would seem logical that interest rates for borrowed funds should rise.
Because CDs are essentially the bank borrowing money from its customer, one would assume that higher CD rates could be included in this higher interest rate scenario.
Treasury Bond Interest Rates Rise
As described by MarketWatch.com, the week ending March 26 saw Treasury bond prices fall fast. Treasury bond prices move inversely to the interest rates the U.S. government pays on these bonds, so lower Treasury bond prices are a traditional sign that interest rates on CDs may head higher.
The argument that higher Treasury bond interest rates should equate to higher CD rates is based upon the idea that if the U.S. government has to pay higher interest rates to borrow money, then banks should undoubtedly be subject to higher borrowing costs, as well.
CD Rates Affected, Though, By the Strange Math of Today's World Economy
Fortune magazine (finally) published an article describing the downside of low interest rates.
That mainstream financial publications are only now getting around to talking about the reality that not everyone benefits from low interest rates shows how biased toward borrowers the world economy has been over the past few years.
Governments and banks continue to purposefully prevent higher interest rates for fear that debtors may default en masse. CD rates suffer under this arrangement.
