The Impact Of The AHCA Failure On Deposit Rates

Bozo | Mar 24, 2017 | 1,375 posts since 2011

As most witnessed since the election, bond rates (and, to a degree, CD rates) increased in a burst of optimism. Now, with reality sinking in, should DA readers lock in the best long-term rates possible? Your thoughts.

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ChasR | Mar 25, 2017 | 287 posts since 2013

I think increased inflation remains a real possibility, even if market "optimism" vanishes and Treasury rates head south for a while. As of today, I'm favoring 3-year CDs at 1.8% or above, both direct and brokered . I was glad to see Synchrony go to 1.8% APY online, and hope that Firstmark CU's 30-month promotion (1.9-2% APY) continues next month. I'm staying away from 4- and 5-year CDs at the moment But, like all rate-chasers, my direction can turn on a dime, depending upon promotions.

Bozo | Mar 25, 2017 | 1,375 posts since 2011

Charles, my greatest worry is an inverted yield curve and stagflation. With the pendulum swinging so far in one direction (after the election), do we now risk a swing in the other? It seems Mr. Market, having flirted with Dow 21,000, is having second thoughts.

Without health-care reform, tax reform, and a massive infrastructure program (the three-legged stool of Trumponomics), the assumptions upon which the post-election rally in stocks (and the fade in bonds) seem to crumble.

ChasR | Mar 25, 2017 | 287 posts since 2013

Stagflation is the type of inflation we suffered through in the 1970s. I can see that happening again very easily if the programs Wall Street has been counting on don't materialize. I think tax reform in particular is in jeopardy unless we take some of the off-the-wall proposals--like the border adjustment tax (another name for value added tax) and draconian limitations on itemized deductions--off the table.

As for the inverted yield curve (which Greenspan called the "Great Conundrum"), I was delighted with it in 2005-07,when, while 10-year Treasuries were yielding somewhere arounn4%, I was earning 5-5-1/4% on six-month T-Bills.

Bozo | Mar 25, 2017 | 1,375 posts since 2011

Exactly. Certain fixed-income products are slower to react than others. I can remember, back in January of 2008, when rates were tanking, and I could still get 5.6% on a ten-year CD from KeyDirect. That puppy still has several months to run, then, I'm SOL.

As for tax reform and infrastructure spending, I'm holding out little hope after today. It's a shame, because we, as a nation, need both.

lou | Mar 25, 2017 | 1,004 posts since 2010

The real tragedy regarding the demise of the Obamacare replacement bill is the loss of those aspects of the bill that would have precipitated economic growth. The termination of the mandates, taxes and the plethora of regulations on small business was the best thing about the bill. It would have been a huge stimulus for the economy. Oh well.

Inflation_Hawk | Mar 25, 2017 | 107 posts since 2016

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Bozo | Mar 26, 2017 | 1,375 posts since 2011

Lou, I fear as well a squandering of "political capital". We, as a nation, need the other two legs of the three-legged stool: tax reform and infrastructure. Paul Ryan is now relegated to herding cats in his caucus. If he couldn't round up the votes for the AHCA, how will he fare with tax reform (which is even more contentious) or infrastructure spending (where he runs right up against the deficit hawks). Getting back to the point of the thread, I fear stock and bond markets may be in for a roller-coaster ride. Worst-case scenario would be the inverted yield curve, as I noted. Keep your eyes on the yield curve.

Bozo | Mar 28, 2017 | 1,375 posts since 2011

I think it fair to say market euphoria has ended.

Bozo | Mar 28, 2017 | 1,375 posts since 2011

2.37 (from 2.62) in a month represents a noteworthy swing in the Ten-year Treasury.

ChasR | Mar 28, 2017 | 287 posts since 2013

Bozo:
I know you hate them, but yields on new issue non-callable brokered CDs are hanging in there or even improving. A new batch of offerings today includes AMEX Centurion with 3-, 4- and 5-year CDs on Fidelity and Vanguard at 1.90%, 2.30% and 2,45%, respectively. Wells Fargo's new rates for the same maturities are 1.85%, 2.25% and 2.40%. I have a GS Bank CD maturing in my IRA at Vanguard tomorrow and will reinvest the balance in one of the AMEX Centurion CDs, probably the 3-year.

Bozo | Mar 29, 2017 | 1,375 posts since 2011

Charles, I don't hate them. I just have to figure out what to do with them. The path of least resistance would be to dump all interest into a sweep account, and be done with it. Given I'm in RMD territory, it's probably not a huge issue.

Kaight | Mar 28, 2017 | 1,192 posts since 2011

Given possibility of two or three more Fed rate hikes this year, it'll take higher rates than currently available for me to commit to longer term CDs. This could change, of course, if President Trump continues to fail. For rates to rise as I hope they will, Trump needs to jumpstart the economy. Otherwise we will remain in the Obama doldrums with lower interest rates, as has been the case these last eight years. It remains to be seen whether or not POTUS can overcome his numerous opponents and ignite America's animal spirits. He is not off to a scintillating start, but he clearly has not thrown in the towel either.

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