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Wednesday, July 18, 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 |
| 7/11/18 | 1.89 | 1.97 | 2.14 | 2.36 | 2.58 | 2.67 | 2.74 | 2.82 | 2.82 | 2.89 | 2.95 |
| 7/12/18 | 1.89 | 1.98 | 2.17 | 2.39 | 2.60 | 2.68 | 2.75 | 2.83 | 2.85 | 2.89 | 2.95 |
| 7/13/18 | 1.87 | 1.98 | 2.16 | 2.37 | 2.59 | 2.66 | 2.73 | 2.80 | 2.83 | 2.87 | 2.94 |
| 7/16/18 | 1.90 | 2.01 | 2.19 | 2.39 | 2.59 | 2.67 | 2.75 | 2.82 | 2.85 | 2.90 | 2.96 |
| 7/17/18 | 1.93 | 2.02 | 2.19 | 2.39 | 2.62 | 2.69 | 2.76 | 2.83 | 2.86 | 2.91 | 2.97 |
Source: U.S. Department of the Treasury, as of 07/17/2018
High Coupon, Worth the Premium?
Many investors have started purchasing high coupon pools (4 %+) at a premium to protect against market value losses in the portfolio as interest rates rise. Often these products carry high premiums that you typically would amortize to the average life.
Below we will compare a 15 YR 3.5% Coupon Pool to a longer higher coupon 4.5% pool. This 4.5% Freddie pool has a dollar price of 105-08 (105.25). Some higher coupon pools may be offered to banks in the 108-110 dollar price range. When evaluating the security, it is important to take into consideration the amount you will have to amortize each year.
3.5% Coupon Freddie Pool:
Source: Bloomberg 7/17/2018 @ 2:37pm
4.5% Coupon Freddie Pool:
Source: Bloomberg 7/17/2018 @ 2:37pm
Some investors may prefer the lower premium offered in the 3.5% coupon pool. Other investors may consider taking on additional 1.3 duration to pick up an additional 36bps. I’d invite you to discuss the suitability of the offerings with your Capital Markets Group representative.
Many investors have started purchasing high coupon pools (4 %+) at a premium to protect against market value losses in the portfolio as interest rates rise. Often these products carry high premiums that you typically would amortize to the average life.
Below we will compare a 15 YR 3.5% Coupon Pool to a longer higher coupon 4.5% pool. This 4.5% Freddie pool has a dollar price of 105-08 (105.25). Some higher coupon pools may be offered to banks in the 108-110 dollar price range. When evaluating the security, it is important to take into consideration the amount you will have to amortize each year.
| FG G18702 | FG G61352 | |
| Coupon | 3.5 | 4.5 |
| Maturity Date | 8/1/2033 | 12/1/2045 |
| Average Life | 5.39 | 6.62 |
| Duration | 4.7 | 5.41 |
| Yield | 3.17 | 3.54 |
| Dollar Price | 101-16+ | 105-8 |
3.5% Coupon Freddie Pool:
Source: Bloomberg 7/17/2018 @ 2:37pm
4.5% Coupon Freddie Pool:
Source: Bloomberg 7/17/2018 @ 2:37pm
Some investors may prefer the lower premium offered in the 3.5% coupon pool. Other investors may consider taking on additional 1.3 duration to pick up an additional 36bps. I’d invite you to discuss the suitability of the offerings with your Capital Markets Group representative.
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