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Wednesday, October 10, 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 |
| 10/2/18 | 2.14 | 2.23 | 2.41 | 2.61 | 2.82 | 2.88 | 2.94 | 3.01 | 3.05 | 3.14 | 3.20 |
| 10/3/18 | 2.15 | 2.23 | 2.41 | 2.62 | 2.85 | 2.94 | 3.02 | 3.10 | 3.15 | 3.24 | 3.30 |
| 10/4/18 | 2.16 | 2.22 | 2.42 | 2.63 | 2.87 | 2.97 | 3.05 | 3.14 | 3.19 | 3.29 | 3.35 |
| 10/5/18 | 2.15 | 2.23 | 2.41 | 2.64 | 2.88 | 2.99 | 3.07 | 3.18 | 3.23 | 3.34 | 3.40 |
| 10/9/18 | 2.17 | 2.25 | 2.46 | 2.65 | 2.88 | 2.98 | 3.05 | 3.15 | 3.21 | 3.30 | 3.37 |
Source: U.S. Department of the Treasury, as of 10/09/2018
Picking Up Yield and Limiting Your Extension Risk
As rates rise, portfolio managers may want to refocus on mortgage bonds within the 5 year average life space. As rates move up and down, this portion of the curve has offered attractive yields with an average life and duration that is an appropriate mix for most financial institutions portfolios.
New issue pools offer stability, in that the mortgage holders have just made their deal and locked in financing. The cash flow from the mortgage portfolio is there to augment the loan side of the balance sheet. Consistent cash flow from the mortgage portfolio leads to options down the road.
The pool below was issued on September 1ST of this year. Mortgage holders have a 4.22 rate. This is a large pool with 3,240 loans. The weighted average loan size is $249,000. Geographics are California at 10%, Texas at 9.6%, and Florida at 6.6%. The yield is 3.44% and the average life is 5.35 years. The extension in average life is only 1 year with rates moving up another 300 basis points. Limiting extension risk and picking up yield with a 15 year new issue mortgage pool will fuel your portfolio for the future.
As rates rise, portfolio managers may want to refocus on mortgage bonds within the 5 year average life space. As rates move up and down, this portion of the curve has offered attractive yields with an average life and duration that is an appropriate mix for most financial institutions portfolios.
New issue pools offer stability, in that the mortgage holders have just made their deal and locked in financing. The cash flow from the mortgage portfolio is there to augment the loan side of the balance sheet. Consistent cash flow from the mortgage portfolio leads to options down the road.
The pool below was issued on September 1ST of this year. Mortgage holders have a 4.22 rate. This is a large pool with 3,240 loans. The weighted average loan size is $249,000. Geographics are California at 10%, Texas at 9.6%, and Florida at 6.6%. The yield is 3.44% and the average life is 5.35 years. The extension in average life is only 1 year with rates moving up another 300 basis points. Limiting extension risk and picking up yield with a 15 year new issue mortgage pool will fuel your portfolio for the future.
Source: Bloomberg 10/10/18
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