Bond Yields Continue to Rise as Savings Rates and Money Market Rates Don’t Budge
The relentless march higher for long term U.S. bond yields continues this week as savings rates and money market rates stay at current levels. 10 year bond yields are up another 0.06 percent this morning bringing the yield up to 2.88 percent. 10 year yields are almost at 3.00 percent which is hard to believe since 3 months ago in early May 10 year yields hit a low of 1.62 percent.
Back in early May, the best savings rates and money market rates were at or just below 1.00 percent. Currently, the best savings and money market account rates in our database are at pretty much the same level. The highest savings rate this week is from The Palladian PrivateBank at 1.00 percent and the highest money market rate is from Sallie Mae Bank at 0.90 percent.
Average Savings Rates and Money Market Rates
Average savings account rates in this week's FDIC survey are at 0.06 percent, down slightly from the average rate of 0.07 percent in early May. Money market account rates are averaging 0.10 percent in the FDIC survey this week. Three months ago the average money market rate was only 1 basis point higher at 0.11 percent.
While long term bond yields are moving higher, short term bond yields haven't moved higher at all the past three months. 1 year bond yields are currently averaging 0.13 percent, the same level yields were back in early May. At this point you're better off placing your money in deposit accounts or certificate of deposits instead of U.S. bonds.
Highest Rates on Longer Term Bonds
Rates are higher on longer term bonds but unless you plan to buy longer term bonds of 7 years or more even a 7 year rate currently offered at 2.28 percent isn't the best investment you can make since interest rates are moving higher. Also bond prices move lower as yields move higher, so you'll have to hold onto the bonds until maturity or lose of your principal investment.
You're better off waiting out this low interest rate cycle for another year or two so you'll be in a position to take advantage of higher rates. The Federal Reserve Open Market Committee (FOMC) is scheduled to meet in September and the markets believe the FOMC will announce an end to their purchases of bonds and mortgage-backed securities (MBS).
When Will Deposit Rates Move Higher?
The belief that the FOMC will end their purchasing of bonds and MBSs has already sent long term bond yields and fixed mortgage rates much higher. If the FOMC does announce an end to their purchases, rates will move even higher from current levels. Savings rates and money market rates still won't move higher if this plays out. We will have to wait until the FOMC increases the federal funds rate before deposit rates move higher.
The current federal funds rate is fluctuating in a targeted range of zero percent to one quarter percent. The FOMC has held the fed funds rate at this level since December of 2008. They state they plan to keep the rate this low until the unemployment rate falls below 6.5 percent. The current unemployment rate is at 7.4 percent.
When the rate will fall below 6.5 percent is debatable but since the rate is only 0.9 percent below the target rate we don't have long. The rate could possibly fall below 6.5 percent by the first quarter of 2014. Soon after the FOMC is expected to start increasing the fed funds rate and then banks will increase deposit rates soon after.
If this scenario plays out we could see higher savings rates, money market rates, and CD rates by the second quarter of 2014. You can find the best deposit rates right here at RatesORama.com.
RatesORama.com Average Mortgage Rates