This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Widening Spreads Leave Savings Accounts Behind -- For Now

Long-term bond yields are on the rise, along with some other important interest rates, such as mortgage rates. The question for bank depositors is: When will savings account rates follow?

A look at the history of long-term and short-term interest rates suggests that while it is a good sign for long-term rates to be rising, they could continue to go their own way for a while before short-term rates start to follow.

A comparison of short- and long-term rates

Treasury securities are issued with maturities measured in everything from months to several years. Long-term Treasuries tend to have more in common with long-term bank rates such as mortgage rates, while short-term Treasuries tend to have more in common with short-term bank rates, such as savings and money market rates.

Understanding those relationships is significant in the context of changes over the past few months. Ten-year Treasury bond yields rose by 54 basis points over May and June, while three-month Treasury yields declined by 1 basis point. That helps explain why mortgage rates have jumped, while most savings and money market rates haven't budged.

The next question, then, is: To what extent can long and short rates continue to go their separate ways? The difference between the two is referred to as a spread, and as a result of the changes over the past months, that spread has widened by 55 basis points, from 1.7 percent to 2.25 percent. Over the past 30 years, that spread has averaged 1.83 percent, meaning that the past two months have seen that spread go from below average to above average.

How much wider can that spread get? The widest in the past 30 years has been 3.69 percent. Putting this all together, an above-average spread means that long-term and short-term rates are likely to move closer together -- eventually. However, that spread can still widen quite a bit before that happens.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free


Chart of I:DJI
DOW 17,798.49 -14.90 -0.08%
S&P 500 2,090.11 +1.24 0.06%
NASDAQ 5,127.5250 +11.3820 0.22%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs