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Fed Funds Rate Vs. 5 Year CD / MYGA Yields

RateChaser19
  |     |   7 posts since 2019

Anyone have an opinion on the effect of Fed Fund Rate (FFR) increases on 5-year CD / MYGA yields?

I've heard that FFR increases and reductions most directly affect the short-end of the yield curve - primarily the 2 year Treasury Yield, and that the 10-year Treasury Yield is most tied to the economy, But the 5 year range is a bit of a mystery to me..

It appears FFR increases by the Fed do little to move 5 year rates. For instance - MYGA rates DROPPED by roughly a half percent over the same recent period that the Fed raised rates by 75 bps. I candidly didn't track 5 year CD yields but would expect they acted similarly, even though we *have* seen 5 year CD yields tick up recently.

Would be interested in everyone's opinion on this..

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Answers
sams1985
  |     |   781 posts since 2022
I'm no expert at all and have just been tracking yields and cd rates closely since March. I' also thought there was a correlation between the 10 year yield and 5 year cd rates but that's not what i've observed. Even after 10 year yields peaked and started to decline, 5 year cd rates have slowly trickled up, even from the big banks. The rate usually ticks up right before an interest hike and then stays static for the next few weeks. I am waiting for mid September to see if this phenomenon continues. I think i will start laddering after seeing what happens in September. I'm getting a bit antsy waiting on the sidelines.
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sharon907
  |     |   36 posts since 2022
5 year CD rates have definitely fallen, since mid-June.

This is most apparent when in the secondary CD market, where CDs compete in a market.

There will always be outliers, because banks and credit unions that offer direct CDs, are individuals, and not part of a bond market.

This is a fact.

As to opinions, since 2018, I have stated anyone here who thinks they can forecast interest rates, is wasting their overpriced talents, here.
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uac2
  |     |   6 posts since 2022
Its been a mystery to me too. But the answer seems to be that in the current environment there are two opposing forces at play. The Fed Funds rate increases and we expect to see that reflected in higher CD rates. But the opposing force is, the Fed Funds Rate goes up, the probability of a recession increases, which means less borrowing especially for mortgages and the banks hold rates at the lowest threshold because they don’t expect to need the additional capital to support a lower lever of economic activity. At least that’s how I understand it.
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