Interest Rates on the Move! (Finally)

[Rianne]

Are we talking simple interest or compound interest?

[audreyh1]

Long rates have gotten back to their May high yields for the year - not quite exceeding them.

But the 5-year treasury has reach a yield not seen since 2009. It got very close to 3% this morning.

The 2-year treasury has reached a yield not seen since 2008.

The Fed is widely expected to raise the Fed Funds Rate another 0.25% tomorrow.

[Lsbcal]

I noticed 5 year TIPS were at 0.93%. I take this as implying we might expect at least 1% real from intermediate bonds that are not inflation adjusted. Then you get some more (big maybe) if going with investment grade.

[redduck]

Quote:

Originally Posted by audreyh1 The Fed is widely expected to raise the Fed Funds Rate another 0.25% tomorrow.

Assuming the rates are raised tomorrow, when would be a good time to invest in a CD (about how long does it take for the banks to raise their CD rates after the Fed raises its rates)?

[njhowie]

Quote:

Originally Posted by redduck Assuming the rates are raised tomorrow, when would be a good time to invest in a CD (about how long does it take for the banks to raise their CD rates after the Fed raises its rates)?

CD rates have already been moving up in anticipation of the rate hike. Look for the laggards to raise their rates to match those who were out ahead of it.

[Fedup]

I’ve been waiting for the increase. Brokered CDs for 3 year did got up .10% from my last purchase.

[audreyh1]

Quote:

Originally Posted by redduck Assuming the rates are raised tomorrow, when would be a good time to invest in a CD (about how long does it take for the banks to raise their CD rates after the Fed raises its rates)?

Hard to say. Seems like adjustments have been a bit slow. The banks are competing with each other and changes have been gradual and not necessarily timed to the Fed increases.

[TwoByFour]

CDs rates are going to closely track mortgage rates since the money that the bank gets from CDs is used to fund bank loans. Mortgage rates are largely determined by market forces when the loan is repackaged and sold. The buyer will demand a certain return, which is heavily influenced by inflation. So there is no direct linkage between CDs and the Fed rate. However, both are influenced by inflation. If rates for CDs (and US Treasuries) are rising, it is probably because everyone believes inflation is going to go up. After all, the Fed told us that when they raised their overnight rate.

[brewer12345]

Quote:

Originally Posted by audreyh1 Hard to say. Seems like adjustments have been a bit slow. The banks are competing with each other and changes have been gradual and not necessarily timed to the Fed increases.

Kinda sorta. If you do a bit of googling, you will find that the banks and analysts that follow the industry are all gabbling about "deposit betas." What they are talking about is the percentage of the change in the fed funds rate that the banks pass along to their depositors. In most interest rate increase cycles, the average eta through the cycle is typically 50-something percent. Typically betas start off low and rise through the cycle until shortly after rates peak. So I would guess that we will continue seeing short term deposit rates rise until fed funds rates peaks.

Longer term deposit rates (CDs) are a little tougher to cuff. By and large I would guess that CD rates move based on a combination of what short term rates and similar maturity treasury rates do.

Different types of banks have different betas. Traditional bricks and mortar banks are not usually high beta propositions. Online banks tend to be high beta.

[Helena]

.

Experts think the Fed will continue to raise rates several times the next year or so.

Good for savers... bad for debtors.

I just took out a "variable CD" which will increase [or decrease] with the Fed Funds Rate but never go below the floor rate. For my five year CD, the floor rate is 3%.

.

[brewer12345]

Quote:

Originally Posted by Helena . Experts think the Fed will continue to raise rates several times the next year or so. Good for savers... bad for debtors. I just took out a "variable CD" which will increase [or decrease] with the Fed Funds Rate but never go below the floor rate. For my five year CD, the floor rate is 3%. .

Where did you find this product? Navy Federal has something kind of similar but shorter term and the rate floor is 50 BP under the starting rate.

[Helena]

Quote:

Originally Posted by brewer12345 Where did you find this product? Navy Federal has something kind of similar but shorter term and the rate floor is 50 BP under the starting rate.

The regional bank is First Guaranty Bank and it has a branch in my Texas hometown near Dallas. I already have a checking account and other CDs there and I love their personalized service. But this is a brand new CD product the bank just started offering. See link below.

Variable CD

.

[brewer12345]

Quote:

Originally Posted by Helena The regional bank is First Guaranty Bank and it has a branch in my Texas hometown near Dallas. I already have a checking account and other CDs there and I love their personalized service. But this is a brand new CD product the bank just started offering. See link below. Variable CD .

Interesting. What is the early withdrawal penalty on the 5 year?

[audreyh1]

Fed funds rate is now 2.25%. Another 0.25% is generally expected in Dec.

[njhowie]

...and the 10-year is falling.

[audreyh1]

Quote:

Originally Posted by njhowie ...and the 10-year is falling.

After rising quite a bit over the past week.

Fed Chair said something about not expecting inflation to increase significantly.

[njhowie]

Quote:

Originally Posted by audreyh1 Fed Chair said something about not expecting inflation to increase significantly.

They contrive their inflation formulas to say what they need them to say.

[imoldernu]

.25 today... one more in December, three in 2019 and one more in 2020.

[njhowie]

Quote:

Originally Posted by imoldernu .25 today... one more in December, three in 2019 and one more in 2020.

That is the view today. I don't think that's what will play out in the end...but I certainly will not complain if it does.

[audreyh1]

Probably the main reason long rates dropped some (but not down to the yields of a couple of weeks ago) was that the Fed Chair implied they might be slightly more aggressive at raising short-term rates. Certainly didn’t indicate a slowing down in spite of removing the “accommodative” language.