From the second piece on Certificate of Deposit (CDs)- "If rates are expected to go up, banks might delay issuing CDs, hoping to get better rates later. Why lock in 7% today if you can get 7.5% next month?"
Is the above argument sound?
If interests rates are expected to go north in future, banks would do well to issue CDs at lower rates now, instead of paying higher yields later when rates go up.
The investors may delay their investments in CDs, if rates are expected to rise in the future. That would fetch them better returns from the banks.
Am I getting this right or is there something I am missing?
Thanks for the catch, Bipin. You are absolutely right here.
We have changed it in the story to:
- Investors hold back: If rates are expected to rise, investors will wait to buy CDs with higher yields rather than locking into lower rates today. Why lock in 7% today when you can get 7.5% next month?
- Reduced demand hits banks: With fewer willing buyers in the market, banks find it harder to issue CDs at reasonable rates. They might simply delay issuances until market conditions improve.
Readers like you keep us accountable and help us be better. Really appreciate it!
The job data seems to be affected by the outlier, during covid there was massive boom, most of the while collar jobs were added during that period, since then addition of jobs in the market is muted at best.
From the second piece on Certificate of Deposit (CDs)- "If rates are expected to go up, banks might delay issuing CDs, hoping to get better rates later. Why lock in 7% today if you can get 7.5% next month?"
Is the above argument sound?
If interests rates are expected to go north in future, banks would do well to issue CDs at lower rates now, instead of paying higher yields later when rates go up.
The investors may delay their investments in CDs, if rates are expected to rise in the future. That would fetch them better returns from the banks.
Am I getting this right or is there something I am missing?
Thanks for the catch, Bipin. You are absolutely right here.
We have changed it in the story to:
- Investors hold back: If rates are expected to rise, investors will wait to buy CDs with higher yields rather than locking into lower rates today. Why lock in 7% today when you can get 7.5% next month?
- Reduced demand hits banks: With fewer willing buyers in the market, banks find it harder to issue CDs at reasonable rates. They might simply delay issuances until market conditions improve.
Readers like you keep us accountable and help us be better. Really appreciate it!
~Prerana
Hey Prerana..you guys do a terrific job at Markets by Zerodha..really look forward to it..Thanks for the clarification!
Best,
Bipin
The job data seems to be affected by the outlier, during covid there was massive boom, most of the while collar jobs were added during that period, since then addition of jobs in the market is muted at best.