Recent Rise in Long-Term Rates Bodes Well for Bank Profitability
Press release from the issuing company
Thursday, January 31st, 2013
RateWatch, a premier banking data and analytics service owned by TheStreet, Inc. reported today that interest rates for savings products are holding steady. The average interest rate on a 5-year CD decreased by one basis point based on data collected from over 90,000 financial institution locations.
Market yields for 10-year U.S. Treasury bonds reached the 2.00% line on Monday, for the first time since April 25 of last year, according to the Treasury's data. The recent rise in long-term rates will eventually bode well for profitability for many banks, as yields on other long-term assets rise, although in the near term, a concurrent rise in mortgage backed securities yields means lower profits for banks on the sale of newly originated loans.
It is too early in this rate cycle for the rising long-term rates to translate to higher deposit rates. The Federal Reserve Open Market Committee in December said that it expected to keep its target short-term federal funds rate in a target range of zero to 0.25% for "at least as long as the unemployment rate remains above 6-1/2 percent," and as long as inflation projections remain within 0.5% of the central bank's long-term goal of 2%.