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Wednesday, September 5, 2018 |
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MANAGING DIRECTOR: |
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US Treasury Market |
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| Date | 1 mo | 3 mo | 6 mo | 1 yr | 2 yr | 3 yr | 5 yr | 7 yr | 10 yr | 20 yr | 30 yr |
| 8/28/18 | 1.96 | 2.13 | 2.28 | 2.47 | 2.67 | 2.73 | 2.77 | 2.84 | 2.88 | 2.96 | 3.03 |
| 8/29/18 | 1.97 | 2.13 | 2.28 | 2.48 | 2.67 | 2.75 | 2.78 | 2.85 | 2.89 | 2.96 | 3.02 |
| 8/30/18 | 1.97 | 2.11 | 2.28 | 2.47 | 2.64 | 2.72 | 2.75 | 2.82 | 2.86 | 2.93 | 3.00 |
| 8/31/18 | 1.95 | 2.11 | 2.28 | 2.46 | 2.62 | 2.70 | 2.74 | 2.81 | 2.86 | 2.95 | 3.02 |
| 9/04/18 | 2.00 | 2.13 | 2.29 | 2.49 | 2.66 | 2.73 | 2.78 | 2.85 | 2.90 | 2.99 | 3.07 |
Source: U.S. Department of the Treasury, as of 09/04/2018
Why Wait 21 Days?
We have just over three weeks now from the Fed’s next potential rate hike. This meeting has been circled for some time as a likely or possible date for an additional move. The speculation of a hike remains even though last month we heard concerns from the White House mentioning a lack of confidence in the Fed’s plan. After the Jackson Hole meeting a few weeks ago, it seems to be full steam ahead with the plan of raising rates at the next meeting. With the probability nearing 100%, the news from the meeting could be a non-event unlike unexpected economic numbers or unforeseen geopolitical issues and current events.
As some may be counting the days until they can enjoy an extra 25bps on excess funds, others may not have a penny to spare. From recent conversations, most Midwest banks fall into two categories:
Bank A: Flush with cash anxiously awaiting the jump in rates and/or their next loan application to be submitted. Not actively seeking out new depositors.
Bank B: No cash. Still seeing steady loan demand. Running CD specials in their branch lobbies.
With rising rates in the near future, both bankers find themselves in a predicament. Weighing the pros and cons to find the solution is very important and could have a big impact on the profitability for the quarter or year.
Rather than sitting on the sidelines waiting for the next event to make a move, both bankers have an opportunity in front of them.
Bank A: Start putting your cash to work. Whether your portfolio is a ladder or looks more like a barbell, keep it going. Fill the short term with liquid securities for when the loans come in. Add MBS Pass-Throughs for a longer state final maturity but a less than five year average life and consistent cash flow for reinvesting in higher rates when they come.
Bank B: Assess the success and profitability of the CD specials. How much are you spending on resources (marketing, time of tellers and relationship bankers) in addition to the rate on the CD? This hard dollar cost may surprise you. Especially if new depositors aren’t showing up as quickly as expected. Looking to the portfolio for short pre-refunded municipals could be a good way to raise cash without taking significant losses. Another is looking to raise funds by way of Brokered CD’S. Looking at the forward curve, there could be big dollars saved by issuing now rather than later amidst an additional 2018 rate hike and possibly three more in 2019.
Whether you identify more closely with Bank A or Bank B, let us know how we can help.
We have just over three weeks now from the Fed’s next potential rate hike. This meeting has been circled for some time as a likely or possible date for an additional move. The speculation of a hike remains even though last month we heard concerns from the White House mentioning a lack of confidence in the Fed’s plan. After the Jackson Hole meeting a few weeks ago, it seems to be full steam ahead with the plan of raising rates at the next meeting. With the probability nearing 100%, the news from the meeting could be a non-event unlike unexpected economic numbers or unforeseen geopolitical issues and current events.
As some may be counting the days until they can enjoy an extra 25bps on excess funds, others may not have a penny to spare. From recent conversations, most Midwest banks fall into two categories:
Bank A: Flush with cash anxiously awaiting the jump in rates and/or their next loan application to be submitted. Not actively seeking out new depositors.
Bank B: No cash. Still seeing steady loan demand. Running CD specials in their branch lobbies.
With rising rates in the near future, both bankers find themselves in a predicament. Weighing the pros and cons to find the solution is very important and could have a big impact on the profitability for the quarter or year.
Rather than sitting on the sidelines waiting for the next event to make a move, both bankers have an opportunity in front of them.
Bank A: Start putting your cash to work. Whether your portfolio is a ladder or looks more like a barbell, keep it going. Fill the short term with liquid securities for when the loans come in. Add MBS Pass-Throughs for a longer state final maturity but a less than five year average life and consistent cash flow for reinvesting in higher rates when they come.
Bank B: Assess the success and profitability of the CD specials. How much are you spending on resources (marketing, time of tellers and relationship bankers) in addition to the rate on the CD? This hard dollar cost may surprise you. Especially if new depositors aren’t showing up as quickly as expected. Looking to the portfolio for short pre-refunded municipals could be a good way to raise cash without taking significant losses. Another is looking to raise funds by way of Brokered CD’S. Looking at the forward curve, there could be big dollars saved by issuing now rather than later amidst an additional 2018 rate hike and possibly three more in 2019.
Whether you identify more closely with Bank A or Bank B, let us know how we can help.
This information is intended for institutional investors only. The material provided in this document/presentation is for informational purposes only and is intended solely for private use. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instruments.
•Not FDIC Insured •No Bank Guarantee •May Lose Value