Thursday, January 11, 2018
MANAGING DIRECTOR: Scott Carrithers   PORTFOLIO SALES AND SERVICE: Steve Panknin • George Morris • Jeff Goble • Chris Thompson • Sean Doherty Robert Brickson • Kevin Doyle • Lonnie Harris •  Mark Tranckino • Robert Schuyler  Tom Toburen • Josh Kiefer • Nicole Burczyk • Kelley Frye • Natalie Regan • Aaron Stoffer • Chuck Honeywell

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
1/4/18	1.28	1.41	1.60	1.82	1.96	2.05	2.27	2.38	2.46	2.62	2.79
1/5/18	1.27	1.39	1.58	1.80	1.96	2.06	2.29	2.40	2.47	2.64	2.81
1/8/18	1.30	1.45	1.60	1.79	1.96	2.07	2.29	2.41	2.49	2.65	2.81
1/9/18	1.27	1.44	1.60	1.78	1.98	2.09	2.33	2.46	2.55	2.72	2.88
1/10/18	1.31	1.42	1.59	1.78	1.98	2.08	2.32	2.47	2.55	2.73	2.88

                                                                                       Source: U.S. Department of the Treasury, as of 1/10/18  

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Play Defense with Rising Rates

Interest rates are finally getting a lift due to improvement in the economy, partly because of tax reform and partly because of a more pro-business environment in general by the new administration.  It appears the Federal Reserve is poised to raise rates another 25 basis points at the end of this month as it continues to take baby steps towards normalization of interest rates. So what should investors do to help protect their portfolio knowing rates are on the rise?

One method is to take a more defensive posture by purchasing mortgage backed pools with higher coupons and higher dollar prices. With mortgages rates moving higher, prepayment speeds are not the concern they once were, so the higher dollar price actually works in your favor.

For example: Three pools of 15-year mortgages are shown below. All three pools have the same relative maturity date, but have different coupons; 2.50%, 3%, and 3.50%. As indicated below, investors can shorten their duration, pick up yield and spread, and lower their risk profile by selecting higher coupons. 

Source: Bloomberg 1/10/18

Source: Bloomberg 1/10/18

Source: Bloomberg 1/10/18

Adding higher coupon mortgage pools will help to position the portfolio in a more defensive position.

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