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Tuesday, June 26, 2018

MANAGING DIRECTOR:
Scott Carrithers
 
PORTFOLIO SALES AND SERVICE:
Steve Panknin • George Morris • Jeff Goble • Chris Thompson • Sean Doherty
Kevin Doyle • Lonnie Harris •  Mark Tranckino • Robert Schuyler • Tom Toburen • Josh Kiefer
 Nicole Burczyk • Kelley Frye • Natalie Regan • Aaron Stoffer • Chuck Honeywell • Gus Koppen

US Treasury Market
Date 1 mo 3 mo 6 mo 1 yr 2 yr 3 yr 5 yr 7 yr 10 yr 20 yr 30 yr
6/19/18 1.85 1.94 2.13 2.34 2.54 2.64 2.77 2.84 2.89 2.95 3.02
6/20/18 1.85 1.94 2.14 2.36 2.56 2.67 2.80 2.89 2.93 2.99 3.06
6/21/18 1.85 1.94 2.12 2.34 2.56 2.65 2.77 2.86 2.90 2.97 3.04
6/22/18 1.83 1.93 2.11 2.33 2.56 2.65 2.77 2.86 2.90 2.97 3.04
6/25/18 1.80 1.93 2.13 2.34 2.54 2.63 2.75 2.83 2.87 2.95 3.02

                                                                                      Source: U.S. Department of the Treasury, as of 06/25/2018 

Why is the Ten Year Treasury Yielding Less Than 3%?

No one knows for sure, but obviously, the current yield is acceptable to investors, in light of investor expectations, as well as the Treasury credit and liquidity profile. Of course, this is a simplistic explanation of the market.  So, are ten year Treasury yields headed up? What about the yield on the two year Treasury?

There is no shame in not having the answer to future rate levels. That is why we have long advocated the tried and true method of dollar cost averaging. Buying fixed income securities on a consistent basis with disciplined guidelines is the best way to achieve long term success. If, however, the fear of rising rates, or even market uncertainty has paralyzed your trigger finger, cash flow is the answer. If rates rise, cash is king. If rates stay the same or even decrease, cash is still king. Cash flow, coupled with reasonably short duration and good yield makes the right MBS perfect for most bank portfolios.

In particular, the “seasoned” FHLMC MBS Pool detailed below would be a nice fit for most portfolios. The yield of 3.16% and duration of 4.2 is priced to return about one third of the initial investment in just two years. Priced at 101.406 the minimal premium does not present a material prepayment risk.  If you’d like to know more, the details of this security is provided below:


 
 

                             



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