Sunday, February 9, 2014

Low CD Rates: Lending Drought and Savings Monsoon

Click to enlarge.

The data in red (left scale) shows bank credit of all commercial banks divided by total savings deposits at all depository institutions. Think of it as a lending to savings ratio proxy.

The data in black (right scale) shows the 5-year CD rate (national rate of banks).

The data in blue (right scale) shows the 5-year treasury yield.

I would argue that the red data is a primary driver of interest rates (perhaps not the only one). All things being equal, as people deposit more money in banks relative to what banks are lending, interest rates go down. Put another way, banks have no incentive to offer great interest rates on savings when there is so much money being deposited.

Note that the 5-year treasury (in blue) has recently tried to diverge from this pattern. This is not its first attempt. Its last attempt (back in 2011) failed miserably. For what it is worth, I'm not a believer that it will succeed this time either. Rising interest rate environment? I don't think so. Could be wrong of course. Time will tell.

And lastly, note the extreme lack of a recovery in the lending to savings ratio (in red). It's just been down, down, down.

Here is a closer look at that lending to savings ratio over the past year (using weekly data instead of smoothed semiannual data).

Once again, it's just down, down, down. The lending drought and savings monsoon continues. Those patiently waiting for higher CD rates and higher 5-year treasury yields may be very disappointed. But what's new? They've generally been disappointed for 30+ years.

This is not investment advice.

Source Data:
St. Louis Fed: Custom Chart #1
St. Louis Fed: Custom Chart #2


Anonymous said...

Is this the result and/or symptom

1) of wealth being concentrated into
a few(fewer)hands

2) of financial risk(s) being distorted

3) of "growth" being lower

4) All of the above

5) None of the above

6) Aliens

MisFit Kid

Stagflationary Mark said...

MisFit Kid,

I'm going with #4!

#6 was a close second though, if only because Alien is my favorite movie.

What's not to like about a parasitic entity that knows how to taper? I'm speaking ab out #1 through #3 of course, not the movie, lol. Sigh.

Anonymous said...

What would the Aliens Say........

and then again........

Sigh, No hot women scenes...........

MisFit Kid

Stagflationary Mark said...

MisFit Kid,

I saw Alien as a midnight movie once. The theater was filled with people who had already seen it.

Someone let out a blood curdling scream at the very beginning of the movie (when they were coming out of cyrogenic sleep).

Scared the @#$% out of everyone since nobody expected it. Popcorn filled the air. A few moments later, the entire theater broke out into laughter.

As we were laughing, a bottle could be heard slowly rolling down under the seats. That just added to the effect.

Best midnight movie ever. Hahaha! :)

mab said...

I would argue that the red data is a primary driver of interest rates

I don't think it works that way. Maybe it should though.

The fact that your ratio is > than 1 is telling. Clearly bank lending isn't limited by "savings"!

Maybe "zero change" should be thought of as "know change".

In many respects, we do have free markets. But not when it comes to interest rates, especially at the short end.

The (main) role of propaganda isn't just to influence current thought. It's a tool to prevent certain ideas from ever being considered.

Stagflationary Mark said...


The (main) role of propaganda isn't just to influence current thought. It's a tool to prevent certain ideas from ever being considered.

Where can I learn more about this? I watch CNBC diligently (okay, maybe not) and this topic never seems to come up. ;)

mab said...

Where can I learn more about this?

You have to take both the blue pill and the red pill with a big grain of salt.

Tastes like cr.., never mind.

Stagflationary Mark said...


I took the pills with salt as you suggested. The taste was awful, as expected, but you didn't warn me of the side effects!

I now see layers of propaganda within layers of propaganda.

I made the mistake of turning to Bill O'Reilly.

I was spinning clockwise and the room was spinning counterclockwise. Nearly killed me!

I was looking for the pulse of America but all I became a pulsar of the Milky Way! There were x-rays and gamma-rays being emitted from my forehead. The magnetic field was so strong that I sucked in a passing UPS truck.

It wasn't all bad though. Damn, I'm keeping good time now. ;)

Stagflationary Mark said...

All I became "was" a pulsar! I was spinning so fast I lost an entire word!

D'oh. ;)

mab said...

Yeah, and Fox "News" was "spinning" so much that the Hannity and Colmes show lost Colmes.

I guess with their audience, they really didn't need to even try and appear "fair and balanced".

Don't get me started on Bill O'Reilly's "No Spin Zone"!

For some reason, Fox News watchers never get tired of listening to O'Reilly pontificate about the moral high ground. > Good grief! And O'Reilly complains about double standards!

Stagflationary Mark said...

I'm a sensationalist. I'm a big mouth. I get attention. In this world you have to - if you want a mass-market presentation, you have to get attention. - Bill O'Reilly

He's one of those rare "no spin" sensationalists!


Some tactics include being deliberately obtuse, appealing to emotions, being controversial, intentionally omitting facts and information, being loud and self-centered and acting to obtain attention.

Oops! You specifically told me not to get you started! Sorry about that. ;)