| Wednesday, August 9, 2017 | ||||||||
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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 |
| 8/2/17 | 1.02 | 1.08 | 1.15 | 1.24 | 1.36 | 1.52 | 1.82 | 2.08 | 2.27 | 2.60 | 2.85 |
| 8/3/17 | 1.00 | 1.08 | 1.13 | 1.22 | 1.34 | 1.49 | 1.79 | 2.05 | 2.24 | 2.56 | 2.81 |
| 8/4/17 | 1.00 | 1.08 | 1.14 | 1.23 | 1.36 | 1.51 | 1.82 | 2.08 | 2.27 | 2.61 | 2.84 |
| 8/7/17 | .99 | 1.02 | 1.14 | 1.22 | 1.36 | 1.52 | 1.81 | 2.07 | 2.26 | 2.60 | 2.84 |
| 8/8/17 | 1.00 | 1.06 | 1.16 | 1.24 | 1.36 | 1.53 | 1.84 | 2.10 | 2.29 | 2.63 | 2.86 |
Source: U.S. Department of the Treasury, as of 8/08/17
Buyer Beware—Part 2: Reverse Mortgage Backed Securities
Another holding we have started to see in a few bank portfolios are Reverse Mortgage Backed Securities. The elephant in the room with these bonds, is the public’s perception of Reverse Mortgages. While they are intended to allow seniors access to cash in exchange for equity in their homes, the loans require large amounts of interest and in extreme circumstances can cause some seniors to lose their homes (should they not be able to maintain the property or pay taxes). This was discussed in a March 2014 NY Times article.
Reverse Mortgage Backed Securities are unlike traditional pools because the primary risk revolves around the mortality date of borrowers and home value at liquidation. Many of these securities are backed by HUD insurance, so there is minimal concern regarding the repayment of principal; however, the timing of principal payments can significantly vary from the initial forecast. Investors may argue that the timing of the mortality event is easy to predict, even easier to predict than prepayments in normal pools. However, these securities can significantly extend or prepay when home owners expectantly die or vacate the home early.
Additionally, these securities have a small secondary market making them less liquid. They are also sold at high premiums (~108-120) and carry unknown price risk. If you hold these securities, monitor them closely and periodically get close bid indications from a firm other than the one you purchased it from. Again, if liquidity is important to your bank, please call your investment sales officer to discuss more suitable options.
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