For more than a year, savers have suffered from paltry yields. Money market funds pay less than 1 percent, and bank accounts also are unexciting. Those low-yield days may not last throughout 2010, though.
* The yield on 10-year Treasuries is close to 4 percent now. At the start of 2009, that yield was around 2.5 percent. The financial crisis that seemed so desperate a year ago is not as dire so investors are not as eager for the safe haven of Treasuries. As demand as waned, prices of Treasuries have dropped, which means yields have risen.
* While 10-year Treasuries yield close to 4 percent, 10-year Treasury Inflation-Protected Securities (TIPS) yield less than 1.5 percent. This gap (2.5 percentage points) is much wider than it was a year ago, indicating that investment professionals expect higher inflation.
The bottom line is that the U.S. and worldwide economies are recovering; inflation fears are beginning to surface. In this environment, the Federal Reserve is likely to let short-term interest rates rise. If you invest in CDs, don’t put money into three- or five-year certificates, locking in today’s low yields. If you use shorter-term CDs, you probably will be able to renew them at higher yields when they mature.
