Federal Reserve, the Economy and CD Rate Forecast - February 23, 2021


As the economy recovers from the pandemic, there is concern that inflation could rise to worrisome levels. However, that worry isn’t shared by the Fed. Fed Chair Jerome Powell downplayed the risks of high inflation after the January FOMC meeting:

We understand the inflation dynamics evolve constantly over time, but they don’t change rapidly. So we think it’s very unlikely that anything we see now would result in troubling inflation.

This week, Fed Chair Powell is giving the Fed’s Semiannual Monetary Policy Report to the Congress. In his opening remarks, Fed Chair Powell continued to downplay the risk of troubling high inflation for the near term:

The economy is a long way from our employment and inflation goals, and it is likely to take some time for substantial further progress to be achieved.

Not everyone is in agreement with the Fed Chair on inflation concerns. Inflation that measures consumer prices (like CPI and PCE) may be low. However, rising inflation can be seen in the recent price increases of assets like stocks, commodities and home values. This Sunday WSJ article described today's situation and the risks to the economy:

Cheap imports from abroad, among other global forces, might be holding down U.S. consumer prices while asset prices march higher, creating new risks that could sideline the economy in unexpected ways.

Asset price bubbles contributed to two of the last three US recessions: a tech stock bubble in the late 90s and a housing price bubble in the late 2000s. So it’s reasonable to think that another asset bubble is in the making now.

One thing that is different today than in the last 20 years is that there is not only massive monetary stimulus from the Fed, but there’s also massive fiscal stimulus from Congress and the President. That increases the risk that troubling high inflation will result. The investor, Michael Burry, who became famous from the movie, “The Big Short”, recently tweeted about this risk:

The US government is inviting inflation with its MMT-tinged policies. Brisk Debt/GDP, M2 increases while retail sales, PMI stage V recovery. Trillions more stimulus & re-opening to boost demand as employee and supply chain costs skyrocket.

A better explanation of what’s happening was provided by investment strategist, Lyn Alden, in her article, “Banks, QE, and Money-Printing:”

In 2008-2014, there was a lot of QE (red line going up), but those dollars didn’t get out into public bank deposits (which is what mostly makes up the broad money supply). This was because there was little or no fiscal transmission mechanism; the government wasn’t sending huge checks to people. [...]

However, 2020 was a very different story. The government sent out tons of money directly into the economy, and financed it by issuing Treasury bonds that the Federal Reserve created new bank reserves to buy.

Lyn Alden admits that high inflation is far from a certainty. In her recent article (Thanks to DA reader NYCDoug who linked to it in the Forum), she described three possible scenarios in an investment flow chart. If fiscal stimulus winds down, deflationary forces will likely dominate which will keep consumer prices down. This will keep the Fed maintaining its current monetary policy with zero rates far into the future. On the other hand, if fiscal stimulus is large enough and lasts long enough, inflation will rise. That could lead to a large increase in long-duration Treasury yields which could force the Fed to adjust its bond buying to lower these yields, in what is known as Yield Curve Control (YCC). That might prevent a stock market crash, but it would increase the odds of much higher inflation. If the Fed doesn’t hold down long-duration yields, the stock market and the financial system will be at risk.

So far in 2021, long-duration Treasury yields have increased substantially, and that has continued in the last week. The 10-year yield started the year at 0.93%. At the start of February, it was up to 1.09%, and as of yesterday, it was up to 1.34%. The 30-year yield rose above 2% on February 12th. At yesterday’s close, it was up to 2.14%. That’s higher than it was one year ago (1.90%) before the pandemic hit the US.

Even the 5-year Treasury yield has increased substantially. At the start of the year, the 5-year yield was 0.36%. At yesterday’s close, it was up to 0.61%. For the last year, online 5-year CDs had a large yield advantage over the 5-year Treasury. However, the advantage has been eroding as online 5-year CD rates have fallen. On February 1st, the average online 5-year CD rate was 0.68%. That’s only 7 bps above yesterday’s 5-year Treasury yield.

On the other side of the yield curve, short-duration Treasury yields have fallen closer to zero. That’s expected since they’re heavily influenced by the federal funds rate. At yesterday’s close, the 3-month yield was 0.03% and the 2-year yield was 0.11%.

The odds of a 2021 Fed rate hike continues to grow according to the CME FedWatch Tool, which lists implied probabilities of future target federal funds rate hikes based on the Fed Funds futures market. The odds are small, but they’re growing. Last week, the odds were 7.9% of at least a 25-bp rate increase by the September and December Fed meetings. Those odds have risen to 13.4%. I suggest not taking these slight odds too seriously. Based on what the Fed has been saying, these slight odds would be more reasonable for 2022 or 2023 even if inflation surges higher this year.

The following numbers are based on Daily Treasury Yield Curve Rates and the CME Group FedWatch.

Treasury Yields (Close of 2/22/2021):

  • 1-month: 0.03% same as last week (1.60% a year ago)
  • 3-month: 0.03% down 1 bp from 0.04% last week (1.56% a year ago)
  • 6-month: 0.04% down 1 bp from 0.05% last week (1.53% a year ago)
  • 1-year: 0.06% same as last week (1.43% a year ago)
  • 2--year: 0.11% same as last week (1.34% a year ago)
  • 5--year: 0.61% up 11 bps from 0.50% last week (1.30% a year ago)
  • 10-year: 1.37% up 17 bps from 1.20% last week (1.46% a year ago)
  • 30-year: 2.19% up 18 bps from 2.01% last week (1.90% a year ago)

Fed funds futures' probabilities of future rate changes by:

  • Mar 2021 - up by at least 25 bps: 0.0%, same as last week
  • Apr 2021 - up by at least 25 bps: 4.1%, up from 2.0% last week
  • Sep 2021 - up by at least 25 bps: 13.4%, up from 7.9% last week
  • Dec 2021 - up by at least 25 bps: 13.4%, up from 7.9% last week

CD Interest Rate Forecasts

This was another week in which no major online bank lowered CD rates. That has occurred several times this year, and it may be a sign that online CD rates are near a bottom.

Rate cuts did occur at a few small online banks. The three online divisions of Emigrant Bank (EmigrantDirect, DollarSavingsDirect and MySavingsDirect) all lowered their CD rates. All of their rates now are below the online averages. The highest rate is only 0.45% for CDs with terms from 5 to 10 years.

Northpointe Bank lowered its 5-year CD rate by 5 bps to 0.60%. In late 2018 and early 2019, its 5-year yield had been 3.60%, which was the highest rate for any online bank during this time. Northpointe Bank’s shorter-term CDs haven’t been as competitive, and that continues as its 1-year rate fell 25 bps to only 0.25%.

For credit unions, there’s one small positive change to mention. Michigan State University FCU increased the rates of its 4-year and 5-year CDs. The 5-year Jumbo CD yield increased 10 bps to 1.15%. The shorter-term rates remained unchanged. That’s another sign of some upward pressure on long-term rates.

The other credit unions lowered their CD rates. Wings Financial lowered rates for several CD terms, but it didn’t lower its 5-year rate. Its Jumbo 5-year yield remains at 1.41%, which is near the nationwide rate leaders. Its 4-year Jumbo yield fell 10 bps to 1.11%, and its 1-year Jumbo yield fell 10 bps to 0.70%.

Overall, CD rates are still falling, but the declines have been shrinking in the last few months. That trend continues in February as can be seen in our Online 1-year CD Index which tracks the average rate of 10 well-established online 1-year CDs. The average was 0.46% on February 1st.

The Online 1-year CD Index had its largest drop last March when it fell almost 50 basis points. From April through September, the monthly declines have mostly ranged from 10 to 20 basis points. The monthly declines shrunk to 4 to 5 basis points in October and November. The monthly declines have shrunk to less than 1 basis point in December and January.

As can be seen in our Online 5-year CD Index which tracks the average rate of 10 well-established online 5-year CDs, the decline of 5-year online CD rates has been similar to the 1-year decline except that the early decline was actually steeper. Like the 1-year Index, the monthly declines of the 5-year Index have shrunk in recent months with very little decline in both December and January. On February 1st, the average was 0.68%.

I’m only including one to three CD rate changes per institution to avoid an overload of data. All percentages listed below are APYs.

  • Michigan State University FCU (5yr Jbo 1.05% → 1.15%, 4yr Jbo 0.90% → 1.00%)
  • Wings Financial CU (4yr 1.21% → 1.11%, 1yr 0.80% → 0.70%)
  • American Heritage FCU (5yr 1.05% → 1.00%, 20m 0.92% → 0.80%)
  • Credit Union of Denver (4yr 0.90% → 0.80%, 13m Spc 0.90% → 0.80%)
  • State Bank of India (3yr SC 0.80% → 0.75%, 1yr SC 0.60% → 0.55%)
  • Northpointe Bank (5yr 0.65% → 0.60%, 1yr 0.50% → 0.25%)
  • DollarSavingsDirect (5yr 0.50% → 0.45%, 6m 0.40% → 0.35%)
  • EmigrantDirect (5yr 0.60% → 0.45%, 16m 0.50% → 0.40%, 6m 0.40% → 0.35%)
  • MySavingsDirect (5yr 0.50% → 0.40%, 6m 0.30% → 0.25%)
  • WauBank (61m 0.50% → 0.40%, 13m 0.35% → 0.25%)

I was going to say that like CDs, this was another week in which no major online bank lowered their savings or money market rates. I’m afraid I can’t say that. This morning, Synchrony Bank and CIT Bank both lowered their rates. Synchrony lowered its savings and money market rates by 5 bps. Its High Yield savings rate is now 0.50%. CIT Bank also lowered its rates by 5 bps. Its Money Market rate is now 0.45%.

Two weeks ago Discover Bank joined other major online banks like Capital One by lowering its online savings account rate to 0.40%. CIT Bank appears to be heading that way. We’ll see how long Synchrony holds at 0.50%. Other major online banks with savings account rates in the range of 0.50% to 0.60% could decide to join them or at least lower their rates to under 0.50%.

As was the case for CDs, online savings account rate cuts did occur at a few small online banks. The three online divisions of Emigrant Bank (EmigrantDirect, DollarSavingsDirect and MySavingsDirect) all lowered their online savings account rate by 5 bps. The rate at DollarSavingsDirect and EmigrantDirect is now 0.35%. It’s 0.25% at MySavingsDirect. In late 2018 when rates were peaking, MySavingsDirect savings account became a rate leader. In December 2018, it reached a high of 2.40% APY. For the last 16 years, Emigrant Bank’s online divisions have been known for their inconsistent rates. There are times when one of the divisions is a rate leader, but that never lasts. Most of the time, the online divisions lag the online averages.

Online savings account rate declines may be slowing, but the monthly declines are larger than the CD rate declines. This can be seen in our Online Savings Account Index which tracks the average rate of 10 well-established online savings accounts. The Index was dropping 10 to 20 basis points each month from March through September. For the last four months, the monthly declines have shrunk to 2 to 4 basis points. On February 1st, the average online savings account rate was 0.49%.

Below are examples of important savings and money market rate changes in the last week. As is the case with the CD rates, I’ve included only rate changes from the online savings accounts that DA readers would be most interested in. All percentages listed below are APYs.

  • Wings Financial CU High Yield Savings (0.70% → 0.60%)
  • Quontic Bank High Yield Savings (0.65% → 0.55%)
  • Synchrony Bank High Yield Savings (0.55% → 0.50%)
  • CIT Bank Money Market (0.50% → 0.45%)
  • WauBank High-Yield Savings (0.50% → 0.40%)
  • DollarSavingsDirect Savings (0.40% → 0.35%)
  • EmigrantDirect Savings (0.40% → 0.35%)
  • MySavingsDirect (0.30% → 0.25%)
  • State Bank of India Money Market (0.35% → 0.20%)

I’ll have more discussion of the savings and money market rate changes in my liquid account summary later today.

Economic and Deposit Rate Scenarios in 2021

With a new year, it’s time for new scenarios about how the economy and interest rates will evolve over the next year. A rise in interest rates will almost certainly require a steady and strong economic recovery. So future interest rates depend heavily on the future health of the economy.

It’s possible that interest rate increases could be caused by a sustained period of rising inflation. In this case, the Fed may be forced to hike rates even if the economy hasn’t recovered. Based on history, the odds of this happening appear low. However, as I described above, the odds of this appear to be rising. For now, I’ll exclude this scenario.

There’s always the possibility of major shocks to the economy that could cause a depression. A depression would almost surely result in the zero rate environment to continue for at least the next decade. The odds of this are also low.

I think one of the following three scenarios is most likely to occur over the next decade:

  1. Strong and fast economic recovery
  2. Slow economic recovery
  3. No sustained economic recovery

Of course, a quick economic recovery would be the best case scenario for deposit rates, but even in that case, the Fed won’t be in a hurry to raise rates. Their new inflation framework will likely cause them to be slower in their rate hikes than they were in the last zero rate period. In the Fed’s December Summary of Economic Projections, no FOMC participant expects a rate hike in 2021. Only one out of the 17 expects a 25-bp rate hike by the end of 2022. Five expect at least one rate hike by the end of 2023. So in this best case scenario, the Fed will start hiking rates by either the end of 2022 or 2023. As we learned in 2015 and 2016, it can still be a long time from the first Fed rate hike to when we see significant increases in deposit rates. It took about 18 months after the first Fed rate hike in December 2015 before we started to see widespread deposit rate increases.

There are many things that could prevent a strong economic recovery. These include a pandemic that doesn’t go away and government policies that inhibit growth. If economic growth is weak, that will push out the Fed’s first rate hike. In this case, we could see this zero rate period be close in duration to the last one. If it matches the duration exactly, the first Fed rate hike wouldn’t come until March 2027.

Out of the three scenarios, the worst case would result in the Fed holding rates near zero for a period that would be longer than the last one, which lasted seven years. In this scenario, the economy remains weak with high unemployment and low GDP. The economy would have to improve and force inflation to rise in a sustained fashion before the Fed would even think about rate hikes.

Before the Fed starts to hike rates, it’s possible that we’ll see small gains in CD rates. Based on the 2013-2014 history, the start of the Fed tapering its asset purchases could be the first sign of higher CD rates. In May 2013, the Fed Chair started to signal that a pull back or taper of its asset purchases was being considered. The first small pull back was announced by the Fed in December 2013. This period is known as the Taper Tantrum, and Treasury yields did have significant increases in 2013 and 2014. CD rates also had increases.

The Taper Tantrum period of 2013 and 2014 was a time when CD rates went up even as the Fed was holding steady with rates near zero. PenFed’s 5-year CD yield was 1.15% from May to August, 2013 (pre-2020 all-time low). PenFed’s 5-year CD yield increased to 3.04% In December 2013 and January 2014. Ally Bank’s 5-year CD yield increased from 1.51% in May 2013 to 2.00% in September 2014. Synchrony Bank’s 5-year CD yield increased from 1.51% in April 2013 to 2.30% in April 2014, and Discover Bank’s 5-year CD yield increased from 1.50% in October 2013 to 2.10% in August 2014.

Future Rates and CD Term Decisions

It’s possible that we will see a strong economic recovery in 2021 and that will cause the Fed to signal that it’s thinking about tapering its asset purchases. If that happens, we may see some CD rate gains, especially on 5-year CDs, by the end of 2021 or in the first half of 2022. A strong economic recovery also has other effects that contribute to rising deposit rates. A strong economy results in higher loan demand which requires increased deposits. Also, a rising stock market encourages investors to move money from cash into stocks. That lowers deposit levels at banks.These factors encourage banks and credit unions to raise deposit rates.

In the 2013-2014 Taper Tantrum period, 5-year CD rates at online banks increased 50 to 80 basis points. Larger rate increases occurred at a few credit unions. PenFed had some of the largest increases. Its 5-year rate increased almost 200 basis points. If we see similar rate increases in the next two years, we could see top 5-year CD rates at online banks be in a range from 1.50% to close to 2.00%. We could see some CD specials at credit unions with rates above 2.00%.

With at least some possibility of 2% CD specials in 2021 or 2022, locking into long-term CDs with rates near 1% and below doesn’t seem like a good strategy. The possibility of an inflation surge also doesn’t make long-term CDs appealing. If we do start to see 2% CDs in the next two years, it’ll be better to keep cash in online savings accounts or reward checking accounts. Then you’ll be able to jump on those CD specials when they appear. The risk that inflation surges and the Fed is forced to raise rates is another reason to keep your money in liquid accounts.

Long-term CDs now only make sense if we’re headed back into a long period of very low rates. In that case a 1% long-term CD will be better than a top savings account with a rate near 0.50%.

During the zero-bound years from 2008 to 2015, online savings account rates remained in a range of 0.70% to 1.00%. There was little to gain with CDs that didn’t have yields higher than this. In today’s new zero rate environment, it appears we are near a bottom for deposit rates. My best guess for this new range for online savings account rates is 0.40% to 0.70%. If you do want to hold CDs, at least make sure that the CD rate is at least higher than 0.70%.

It’s wise to remember that no one can predict future interest rates. So if you want to keep things simple, a CD ladder of long-term CDs is always a useful strategy for your safe money. If you’re worried about being locked into a low-rate CD if rates start rising, choose long-term CDs with early withdrawal penalties of no more than six months of interest.

CD Rate Trends

The above graph shows the rate trends of the average CD rates. These average rates are based on all the rate data that we have collected over the years. This is an interactive graph. You can choose the term of the CDs (from 3 months to 5 years) and the look-back period (from 3 months to 5 years).

As you can see in the graph, average CD rates for all terms plunged from March 2020 to January 2021. The average rates for CDs of all terms are now at 5-year lows. The previous lows occurred more than five years ago in December 2015, just before the Fed’s first rate hike. The average savings account rate (0.154%) is also at a 5-year low. The previous low was 0.177% in December 2016.

Safety of the Banking System and Your Deposits

Even though the banking industry is in a much better position now than it was in 2008, the pandemic is stressing the financial system. Weak banks and credit unions will have a higher chance of failing over the next year. Thus, this is the time to be extra careful that your deposits are within the FDIC and NCUA limits.

  |     |   Comment #1
with currently pinned down short term-interest rates and a willingness by the Fed to accommodate higher inflation, I'm looking closer at short term TIPS mutual funds/ETFs for "safe" money investing as a temporary substitute for deposit products
  |     |   Comment #2
List of TIPS ETFs here:


How does one choose among them? What is behind the wide variance in Annual Dividend Yield % ?
  |     |   Comment #3
Presumably many factors go into the yield of each ETF:
Which TIP vehicles they hold, when they bought them and at what price, what other hedging options the fund has in place, etc.

For example, two ETFs that are identical in every other aspect could vary considerably in yields simply because they bought them at auction at different times (and thus at different prices - yield and price are related as price goes up, yield goes down and vice versa).
  |     |   Comment #4
Like any bond portfolio, the duration has a primary effect on the dividend yield. Longer durations tend to have higher dividend yields. They also tend to be more volatile and sensitive to interest rate changes.

I'm a proponent of diversity in your portfolio and TIPS ETFs might have a place. But in no way are they a suitable alternative to deposit accounts. They are completely different animals.

And even if they hold government bonds and there is no real credit risk, there are other significant risks involved. Here's one of them.

As inflation rises, interest rates tend to rise also. As interest rates rise, the value of bonds decreases, exactly the opposite of the intended benefit of holding TIPS. So there is no guarantee that the value of your TIPs ETF will even rise in an inflationary environment and it may actually fall.

Also, as with all bond funds or ETFs, you lose the ability to hold the bonds to maturity like you have when you purchase individual bonds, thereby losing the guarantee of a fixed value at maturity.

TIPs ETFs are risky. They are a bet that inflation will rise and interest rates won't tend to rise as quickly: a scenario which is plausible right now but no sure thing. That doesn't mean they can't be part of your portfolio. But proceed with caution. These are complicated machines with very little relationship to bank or credit union deposit accounts.
  |     |   Comment #6
P_D writes: "As interest rates rise, the value of bonds decreases, exactly the opposite of the intended benefit of holding TIPS. So there is no guarantee that the value of your TIPs ETF will even rise in an inflationary environment and it may actually fall."

I don't know much about TIPS and TIPS ETFs. My understanding differs from that of P_D, but my understanding may well be incorrect.

According to Treasury Direct:
"The principal of a TIPS increases with inflation and decreases with deflation, as measured by the Consumer Price Index. When a TIPS matures, you are paid the adjusted principal or original principal, whichever is greater.

"TIPS pay interest twice a year, at a fixed rate. The rate is applied to the adjusted principal; so, like the principal, interest payments rise with inflation and fall with deflation."

more from Treasury Direct at https://www.treasurydirect.gov/indiv/research/indepth/tips/res_tips.htm

An article in Investopia deals with this issue and discusses TIPS ETFs. According to that article:

"The principal value of TIPS rises as inflation rises while the interest payment varies with the adjusted principal value of the bond."

Perhaps P_D could provide sources for his assertion re the effect of inflation specifically on TIPS (as distinct from bonds in general).
  |     |   Comment #7
"The principal of a TIPS increases with inflation and decreases with deflation, as measured by the Consumer Price Index. When a TIPS matures, you are paid the adjusted principal or original principal, whichever is greater."

That is correct, but holding an ETF of TIPS bonds has different risks than holding individual TIPS bonds.  As interest rates fluctuate, the market price of existing bonds fluctuates. Generally the market price falls as rates rise. And generally rates rise as inflation rises. So even though the principle of TIPS may increase in an inflationary environment, the increase may be offset by a decrease in the market price of the bonds held in the TIPS ETF. Hence the principle of individual bonds in the portfolio may be greater, but the value of the ETF in the marketplace may still fall. And since in a TIPS ETF you cannot hold the bonds to maturity (as you can with individual bonds), you have no assurance that you will ever receive "the adjusted principal or original principal, whichever is greater." You are subject to market fluctuations of the ETF price.
  |     |   Comment #8
This article from NASDAQ re TIPS ETFs seems to suggest that P_D's repeated assertion is incorrect.

As I previously wrote, I don't pretend to really understand TIPS or TIPS ETFs.

I also wrote: "Perhaps P_D could provide sources for his assertion re the effect of inflation specifically on TIPS (as distinct from bonds in general)."

As is his general practice, P_D provides no sources for his assertion.
  |     |   Comment #9
"As I previously wrote, I don't pretend to really understand TIPS or TIPS ETFs."

Again you are correct. You don't understand TIPS ETFs.

It is a clearly understood basic principle of bonds that their market prices tend to fall with increasing interest rates and a clearly understood principle of economics that interest rates tend to rise in inflationary environments. I suggest that the learned counsel, who excels at posting links but in this case anyway admittedly not so much at sticking to what he is familiar with, consider taking a course in fixed income securities and economics.
  |     |   Comment #12
responding to Comment #9 -- I am well aware that bond prices tend to fall when interest rates increase, and that interest rates tend to increase in inflationary situations.

The question I have posed is whether, and to what extent, this applies to TIPS. Once again, I write (as I did in Comments 6 and 8):

"Perhaps P_D could provide sources for his assertion re the effect of inflation specifically on TIPS (as distinct from bonds in general)."
  |     |   Comment #13

It isn't an assertion. It is an opinion based on my experience and knowledge of economics and financial markets. I am sure that others have the same opinion and offer that if you are interested in the topic there is a lot of information available online for your perusal. You clearly have the research skills to find it.
  |     |   Comment #20
Here is what Vanguard says: "Interest rates on conventional bonds have two primary components: a “real” yield and an increment that reflects investor expectations of future inflation. By contrast, interest rates on an IIS (Inflation Indexed Security) are adjusted for inflation and, therefore, are not affected meaningfully by inflation expectations. This leaves only real interest rates to influence the price of an IIS. A rise in real interest rates will cause the price of an IIS to fall, while a decline in real interest rates will boost the price of an IIS."
  |     |   Comment #11
it seems to me that duration until maturity of the TIPS the fund holds is a main factor in determining yield. others are whether it uses financial "instruments" like options or derivatives and investor sentiment moving the price of the fund. personally, I favor a short duration fund (5 years) that doesn't use options/derivatives
  |     |   Comment #16
Something to ponder: According to the chart I linked above, as of today, the ETF with the tiniest annual yield (Goldman Sachs, at .02%), has the greatest 4-week return (3.70%).

So the takeaway here is that, as pointed out above, these TIP ETFs are not comparable to a true ['safe'] Deposit Account, but are investments, whose prices fluctuate; i.e., they are potential money losers, in and of themselves. Without even taking into consideration inflation rates & interest rates.

Better to simply invest directly, in TIPS themselves (rather than through an investment vehicle) where there is more of a guarantee?
  |     |   Comment #17
#16 Agree with most of what you said and your main point.

The same principle applies to all bond funds or ETFs.

If you hold an individual bond to maturity, you are guaranteed to receive a return of a certain amount (ignoring credit risk, call risk, etc.)

But there is no maturity on a bond ETF. So you are not guaranteed to receive back anything at all. The value of your holdings is constantly subject to variation just like and equity stock or equity fund or ETF.

It's a critical difference between holding individual bonds (TIPS or otherwise) and ETFs of those bonds. If my recollection is correct, there have been periods where inflation increased and TIPS ETFs LOST value.

As to the Goldman Sachs bond, I would have to look at it more closely to see what is going on. But my guess is that it may have a short duration, and that is a potential plus in a rising rate environment. There is talk of possible impending inflation so that might drive the value up relative to other such ETFs. Just a guess... could very well be other reasons.  Might also be a derivative play of some kind... that's also likely.

The important thing to note is that that 3.70% is the total return. That means the PRICE of the ETF increased in the marketplace. That is different from the principle value of the underlying bonds, and also different than "interest" or dividends. The PRICE of the ETF apparently increased during that 4 week period. It could also potentially fall in the next 4.

Is it better to hold individual bonds? Like everything else in investing... yes and no. Each has pros and cons and is a different fit for different investors.
  |     |   Comment #5
Well I'm feeling blessed at 74 as two years ago I placed $300,000 into a 7 year CD at 3.5% thanks to being a follower of all the great information which you provide on your site! Thank You so much!
  |     |   Comment #10
In retrospect that was a great move alright!

That is unless rates are even higher over the next few years, which is not impossible if the Fed loses control of the markets.
  |     |   Comment #18
Where was that?
  |     |   Comment #19
I'm guessing Andrews -- as in Andrews Air Force base. (He gave us a hint, from his handle: "AirCommando" -- Get it!?)

I've got a 7-year CD with them, as well . . . but only 3.45% APY. (And not as much moolah)
  |     |   Comment #23
Good guess NYC Doug, just wrong base. 3.45% is a great rate these days; happy for you! There are no longer any Air Commando's today they changed in 1968 to Air Force Special Operations Command which is headquartered at Hurlburt Field in FL.
#14 - This comment has been removed for violating our comment policy.
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Federal Reserve, the Economy and CD Rate Forecast - January 26, 2021

The FOMC meeting begins today. The meeting will end on Wednesday with the release of the FOMC statement scheduled for 2:00pm. After the statement release, a press conference by Fed Chair Jerome Powell will take place at 2:30pm. No policy changes are expected from this meeting. Most of the news should come from the press conference.

At the press conference, reporters will likely ask Fed Chair Powell about recent comments from regional Fed presidents suggesting that the Fed could start tapering its bond purchases by later this year. Although Powell will...

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Federal Reserve, the Economy and CD Rate Forecast - January 19, 2021

The first Fed meeting of 2021 is scheduled to take place next week. No policy changes are expected. There has been talk by a couple of Fed officials that the Fed could start tapering its bond purchases late this year if the economy does have a strong recovery.

This Fed taper talk along with the increased odds that the new Congress will pass more fiscal stimulus has contributed to rising long-dated Treasury yields. In 2013 when Fed Chair Ben Bernanke hinted that the Fed was thinking about tapering, the markets were...

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