WEEKLY FINANCIAL REVIEW: Interest Rates Nudge Higher
Fed meeting this week with no change in rates expected.
Bryce Knorr
Published: Jan 27, 2009
With all the doom and gloom in the air these days, sometimes it's hard to tell what's good news and what isn't.
Consider interest rates. Evidence is growing that rates are bottoming, especially for longer-term debt. Optimists — and there have to be a couple of them out there, somewhere — believe this is a sign that confidence is returning to credit markets. They point to Monday's existing home sales data for the end of last year. Sure, the number of sales, 4.7 million, was down 3.5% from December 2007. But it also showed a 6.5% gain from November. A survey of leading indicators also defied expectations, showing its first gains since June.
Long-term loans have shown the most buoyancy, as homeowners refinance to take advantage of low rates. Yields on the 30-year Treasury bond are up to 3.39%, after moving below 3% for the first time in history last month. This has steepened the yield curve even more, because rates on 30-day T-bills remain near zero.
At the same time, short-term market rates are also firming. LIBOR, used to peg many variable rate operating loans, is slowly creeping higher, even as the Federal Reserve holds its Federal Funds target near zero. The Fed begins its scheduled two-day meeting today, with no change in rates likely Wednesday.
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