10 Year U.S. Treasury Yields Rise Above 2.00 Percent as 4th Quarter U.S. GDP Declines 0.1 Percent
10 year U.S. Treasury yields are higher today and above 2.00 percent for the first time since April 2012 as the Commerce Department reported 4th quarter GDP contracted 0.1 percent. The decrease in GDP was a surprise since economists estimated the number would come in at plus 1.0 percent.
The economy was humming along in 2012 – 3rd quarter GDP was at 3.1 percent and overall, the economy grew at 2.2 percent for 2012, up from 1.8 percent in 2011. The recent pull back is due to businesses reducing inventories and government spending falling sharply. These two reductions can be attributed to politicians struggling to reach a fiscal cliff deal on tax increases and budget cuts at the end of 2012.
Federal government consumption expenditures and gross investment decreased 15.0 percent in the fourth quarter, after increasing 9.5 percent in the third quarter. Private inventories subtracted 1.27 percentage points from the 4th quarter GDP; in the 3rd quarter inventories added 0.73 percentage point to GDP.
Congress and the President have come to an agreement on the tax side of the fiscal cliff but they spending part of it hasn’t. This uncertainly combined with the 2 percent payroll tax holiday has economists concerned about growth in 2013. The payroll tax increase has already zapped consumer confidence as paychecks were smaller starting in January. The Conference Board’s Consumer Confidence Index® is at 58.6 for January, down from December’s reading of 66.7.
The increase in 10 year bond yields will be temporary as the Federal Reserve will continue buying bonds to drive interest rates lower. The Fed is also continuing their program of buying mortgage-backed securities to drive mortgage rates lower. The Fed wraps up their two day meeting on economic policy today and they will release a statement soon after.
Analysts believe there won’t be any change in policy after this meeting, which means the fed will keep the fed funds rate in a targeted range of zero percent to one quarter percent until mid-2015. Unfortunately this also means CD rates and all interest bearing asset rates will stay low for now.
The good news is mortgage rates will also stay low so if you’re thinking about buying a home or refinancing your mortgage your in luck. If you’re retired an rely on interest income from deposit accounts you’re still stuck dealing with low interest rates. To help you maximize your investment return you can search for the best CD rates by searching our database of rates here: CDRates.MonitorBankRates.com.
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