Interest Rates Will Retreat From Recent Surge

Interest rates on U.S. Treasuries and mortgage rates will retreat from recent gains for a number of reasons. The run-up in interest rates the past three months was on the expectation that the Federal Open Market Committee (FOMC) would curtail their purchases of bonds and mortgage backed securities (MBS).

The increase in long term Treasury yields and mortgage rates was overdone and wasn't warranted. The most recent FOMC statement released for their July meeting showed no change in plans for purchasing $45 billion a month in longer term U.S. Treasuries and $40 billion a month in MBS. The recent weaker economic data and consumer confidence number will also keep a lid on any increase in interest rates.

Short Term CD Rates, Savings Rates, and Money Market Rates Remain Low

Since early May, yields moved up over 100 basis points on most long term Treasuries. Mortgage rates also moved up over 100 basis points on fixed conforming loans. Unfortunately, short term CD rates, savings rates, and money market rates haven't moved much higher from record lows. The best CD rates on 1 year certificates of deposit on are at 1.04 percent. The best savings rates are at 1.00 percent and the best money market rates are at 0.90 percent.

Interest Rates Will Retreat From Recent SurgeFriday's payroll report for the month of July was disappointing and sent equity markets lower. 10 year bond yields are following equities lower and are down 12 basis points this morning to 2.60 percent, down from the 52 week high of 2.74 percent. A recent report on consumer confidence was released a few days ago and show confidence is at the lowest point since April.

Lower Economic Confidence Index Will Drive Mortgage Rates Lower

Gallup's Economic Confidence Index for the week ending July 28, registered at -13, the lowest point since April and is 10 points lower than it was in early June. Weak employment news and weak consumer confidence will continue to drive bond yields lower which will in turn drive mortgage rates lower.

The economic calendar of data expected to be released this week is heavy but the only numbers that could force rates lower are initial jobless claims and continuing jobless claims. If either of those numbers come in weaker than expected, 10 year bond yields will move under 2.50 percent.

Small Bump Higher in Long Term CD Rates

Long term average CD rates haven't moved at all the past several months. Current average 5 year bank CD rates in the FDIC's national rate survey this week are at 0.74 percent. Back in May, 5 year CD rates at banks were averaging 0.75 percent. While average rates are down slightly the past three months, there are some banks increasing rates.

In late July we had a bank in our database increase 5 year CD rates above 2 percent. Now we have two banks offering 5 year rates above 2.00 percent. iGOBanking increased their 5 year rates to 2.03 percent with an APY of 2.05 percent in late July.  EverBank recently increased their 5 year rates to 2.04 percent with an APY of 2.06 percent.
Author: Brian McKay
August 6th, 2013