The Interest Rate Squeeze

When I spoke to my sister the other day, she was concerned that the interest rates on available CD's were at an all-time low. She and her husband are retirees living in Florida, and these rates are important to them, and to millions of other Americans on fixed incomes. Yields have sunk so low and so fast that some experts are afraid that rate-sensitive investors may switch to riskier investments, such as the so-called "high yield" mutual funds that invest in junk bonds. Yields on CD's had held up pretty well until the Feds dropped the discount rate to banks by 1.25% in a nine day period in January, in a further attempt to slow the repercussions of the subprime meltdown.
The squeeze is worsened by the rise in mortgage interest rates in the past week, as lenders struggle to adapt to the higher limits for conforming real estate loans. Meanwhile, the consumer is caught in the middle.