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Wither CD Rates

fred_b
  |     |   172 posts since 2022

Since the 'good' news about inflation easing, the 10 YR T-note has dropped a lot! It's currently retreated to 3.695%.

Does this mean that CD rates may start declining ... at least temporarily ... until the next Fed meeting?

Do CD rates follow treasury yields or are they more dependent on the Fed funds rate and dot plot (SEP)?

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4


Answers
fred_b
  |     |   172 posts since 2022
Well, this will help restore some perspective. St. Louis Fed President Bullard said today that the proper zone for the fed funds rate could be in the 5%-7% range and that the policy rate is not yet in a zone that may be considered sufficiently restrictive.

That comment pushed the 10 year treasury back up to 3.78%.
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9
CDsuckers
  |     |   70 posts since 2022
Let's all send the guy a thank you card...
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sams1985
  |     |   781 posts since 2022
Can someone please explain why an almost guarantee of more future rate hikes will cause the treasury yield to invert like this ? Even with an inversion , if the short term yields keep rising wouldn’t it drag up the 10 year anyway despite the inversion ? I’m not understanding this concept very well.
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2
CuriousDave
  |     |   233 posts since 2018
The prospect of higher rates is for the short term only. The thinking - right or wrong - is that inflation will be tamed over the next few years and that rates will eventually come down. So the market perception (again, whether right or wrong) is that rates will remain high for the short term but will drop in the long term, so for now we see the curve inverted. How rates will actually play out remains to be seen.
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5
w00d00w
  |     |   360 posts since 2012
I agree...just adding on, one set of expectations for an upcoming 10 year period could be: 5% for year one, 4.5% for year two, 4% for year 3, and 3.5% for 7 years. That composite for the 10 year period would be 3.8%. Moving the rate from 4% to 5% over the next few months really wouldn’t change the 5% expectation for year one or the expected composite rate. If, for whatever reasons, current expectations get readjusted upwards for even higher rates and/or longer duration of higher rates, then i'd expect those longer duration yields to rise.
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3
sams1985
  |     |   781 posts since 2022
On what fundamentals exactly, i will never understand. "Good" is an understatement. The media has proclaimed inflation over and defeated.
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fred_b
  |     |   172 posts since 2022
Well, it looks like the recent rate drops at KS StateBank have given me an indication that CD rates respond to changes in treasury bill/note market rates even when there's been no change in the Fed funds rate. The only other explanation is that the bank didn't want to continue to attract deposits at the pace their 4.99% APY did.
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CDsuckers
  |     |   70 posts since 2022
They certainly have, withered...
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Kaight
  |     |   1,192 posts since 2011
Wither CD Rates

Compliance
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Sardonic
  |     |   34 posts since 2022
Libertarian economist Peter Schiff says inflation is here to stay and will actually get worse. Then again, he operates a gold fund and it's in his best interest to advance that narrative, since high inflation tends to lead a rise in gold prices.

Unclear if he's right, but it's super unlikely that the CPI numbers will only decrease from now until inflation gets back down to 2%.

The bigger threat to CD rates is a crashing economy. Unemployment is accelerating.
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2
CDmanFL
  |     |   286 posts since 2019
I’m debating whether to break my 3.3% CD at GTE that matures in 2024 and get the highest 5 year I can find. I also have a few other CDs that mature in 2024 that I’m contemplating breaking. I don’t want to look back at this time and say that I should’ve done it but it’s a tough call. Also, breaking CDs and opening new accounts is not how I like to spend my time but I’m starting to feel that I should just do it.
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sams1985
  |     |   781 posts since 2022
I would wait a bit at this point, 5 year rates have really bottomed out. The 5 year treasury yield creeped back up above 4% so there's still a bit of hope.

Can;t believe discover was offering the 4.9% 5 year last week but it never appeared on fidelity.
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1
Sardonic
  |     |   34 posts since 2022
I'm in a similar situation to CDmanFL. I have a 5-year CD at 3.3% that matures in June 2023 and I'm wondering if I should take the 6 month EWP to go in on a different 5-year CD paying 4.9%
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nored
  |     |   32 posts since 2018
I too am in a simular situation and trying to decide what to do. I have several cd that mature mid 2025 at 3.5% 180 days ewp. If anyone would like to expand on this, please do.
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2
55Chevy
  |     |   13 posts since 2020
If you want to tie your money up in another CD for at least 5 years paying very close to 5% right now..then break that CD ASAP. If we are talking about 250/500k plus or more in assets then it's really a no brainer but only if you can get a 5% / 5 yr. Don't expect anything over 5%/ 5 yr  CD rates to materialize as FI's are increasing their asset base from the short term CD's they are selling.
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