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Tide of rising rates does not lift all boats

Tuesday, June 04, 2013 - 02:15

June 4 - Interest rates hover near 13-month highs and that is impacting mortgages and investments, but is having less of an influence on auto loans and savings accounts. Fred Katayama takes a look.

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That old Wall Street refrain - sell in May and go away - has so far applied to bonds this year instead of stocks. As bond prices fell, the yield on the benchmark 10-year Treasury surged north of 2 percent to a nearly 13-month high. Here's what investors, consumers and savers should consider in a rising rate environment. Investors who sought safety in bonds may see losses and the end of a 30-year bull market that drove yields down. FINRA CEO Richard Ketchum: SOUNDBITE: RICHARD KETCHUM, CEO, FINANCIAL INDUSTRY REGULATORY AUTHORITY (ENGLISH) SAYING: "If interest rates go up, that bond fund will lose value most likely, and the manager of that bond fund will turn over the investments. So that will be a loss that won't be regained unless the market reverses and bonds rise. There will be no opportunity to hold your bonds to maturity and be satisfied by that." Mortgage rates, which are tied to 10-year Treasuries, have shot up. A 30-year fixed has risen to 3-point-9 percent, the highest level since May of last year. Bankrate.com's senior financial analyst, Greg McBridge, advises investors to lock in rates now. SOUNDBITE: GREG MCBRIDE, SENIOR FINANCIAL ANALYST, BANKRATE.COM (ENGLISH) SAYING: "Do not, do not go into an adjustable rate mortgage, thinking that you'll be able to refinance your way out of trouble later. Instead, lock in a fixed rate loan. Yes, rates have gone up half a percentage point in the last couple of weeks, but you're still looking at fixed rates in the low 4 percent neighborhood." But interest rates on car loans and savings accounts have held steady. That's because they're tied to short-term rates. SOUNDBITE: GREG MCBRIDE, SENIOR FINANCIAL ANALYST, BANKRATE.COM (ENGLISH) SAYING: "We haven't seen a corresponding increase in short-term rates, and in particular, savings rates haven't increased and probably aren't likely to increase for a couple of years. What it's going to take is for the Federal Reserve to actually boost short-term interest rates, and by all indications, they are still a long way off from doing that." REPORTER ON-CAMERA: FRED KATAYAMA, REUTERS REPORTER (ENGLISH) SAYING: "One way to avoid being hurt when it does: laddering CDs --- buying equal amounts of one, two and three year CDs and so forth, so you're not totally locked into today's low rates. But you won't see the benefit until rates go up, and that may be a way off."

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Tide of rising rates does not lift all boats

Tuesday, June 04, 2013 - 02:15