bank rates

Bad News About Long-Term Brokered CDs

Finger touching a calculator.Since I last visited the subject of long-term brokered CDs, things have deteriorated noticeably.

Back in early October, I reviewed recent new-issue CDs having maturities of 10 years or more and offered primarily through the websites of Fidelity, Vanguard and Incapital LLP.

I reported there were 10-year deals more attractive, from a rate standpoint, than available directly online.

But since then, these deals have become a bit less attractive.

During the week of Oct. 1, for example, Goldman Sachs Bank offered a 10-year CD, not callable prior to maturity, with a 2.50% annual yield.

GE Capital Retail Bank’s 10-year, noncallable CD had an annual rate of 2.45% that week.

But during this first week of December, the newest 10-year, noncallable deals of these two banks both carry 2.20% coupons.

The substantial decline in rates is not easily explained.

One might have expected a bank’s 10-year brokered CDs to have a fairly predictable “spread” over 10-year Treasuries.

Not so.

On Oct. 26, the 10-year Constant Maturity Treasury Rate reported was 1.64%. On Dec. 3, it was 1.63%.

Online bank competition doesn’t explain the drop, either.

During the period Oct. 1-Dec. 3, the best nationally available 10-year bank CD rate I found online remained unchanged — Discover Bank’s 2.10% APY.

(Discover cut that rate to 2% on Dec. 4.)

My guess is competition among desperate buyers, clambering for additional yield, has driven 10-year rates down.

Another 10-year brokered CD out there having a yield competitive with the current Discover offering is a CIT Bank CD carrying a 2% rate.

But CIT’s CD is callable, at par, after six months. Discover’s CD — as most sold directly online — isn’t callable before maturity.

Worse is a 2% Bank of Internet 10-year CD, issued on Nov. 30. It’s callable after three months.

I also keep looking for those elusive 3% deals.

I’ve located one lurking in a GS Bank 15-year “step-rate” CD currently being offered.

The CD has a 2% rate for the first five years, a 3% rate for the next five years and a blended 4.40% rate for the final five years.

By my calculation, that produces an average annual yield of 3.13%.

Sadly, this CD is callable after six months.

If long-term brokered CDs ever had any luster for me, these recent deals — and others I’ve found — have significantly dimmed it.

And we have the Fed to thank for that.

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