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Tuesday, October 16, 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 |
| 10/9/18 | 2.17 | 2.25 | 2.46 | 2.65 | 2.88 | 2.98 | 3.05 | 3.15 | 3.21 | 3.30 | 3.37 |
| 10/10/18 | 2.18 | 2.27 | 2.45 | 2.67 | 2.88 | 2.97 | 3.05 | 3.15 | 3.22 | 3.33 | 3.39 |
| 10/11/18 | 2.14 | 2.27 | 2.44 | 2.66 | 2.85 | 2.94 | 3.00 | 3.09 | 3.14 | 3.25 | 3.32 |
| 10/12/18 | 2.14 | 2.28 | 2.44 | 2.66 | 2.85 | 2.93 | 3.00 | 3.09 | 3.15 | 3.25 | 3.32 |
| 10/15/18 | 2.17 | 2.31 | 2.47 | 2.67 | 2.85 | 2.94 | 3.01 | 3.10 | 3.16 | 3.27 | 3.34 |
Source: U.S. Department of the Treasury, as of 10/15/2018
Buy Agency Bonds According to Your Interest Rate Outlook
When making portfolio decisions, it is important your bond purchases match your interest rate outlook. While this same theory applies to other investment types, today we are going to examine call features on agency products and what would be most relevant according to your investment strategy.
Below we will outline 3 different interest rate outlooks and the specific products that best fit with each. While bankers typically hate buying callable bonds, it is important to understand that this aversion is most applicable in a bear market. However, if you believe the Fed and think rates could be headed higher, callable agencies may be a more appropriate strategy that offer additional spread.
When making portfolio decisions, it is important your bond purchases match your interest rate outlook. While this same theory applies to other investment types, today we are going to examine call features on agency products and what would be most relevant according to your investment strategy.
Below we will outline 3 different interest rate outlooks and the specific products that best fit with each. While bankers typically hate buying callable bonds, it is important to understand that this aversion is most applicable in a bear market. However, if you believe the Fed and think rates could be headed higher, callable agencies may be a more appropriate strategy that offer additional spread.
Source: Bloomberg, CCB Trading Desk
Interest Rate Outlook 1: You think rates are going lower.
- DO NOT BUY PRODUCTS WITH CALL FEATURES
- EXTEND IN BULLETS (OR Treasuries)
- Explanation: The agency that issued the callable bond will call the bond and reissue at the lower
available rate. - Offering detail: FHLB 3.01% Coupon Non- Callable Bullet Due 9/16/22 Offered @ PAR
Interest Rate Outlook 2: You think rates are going higher for the next few years, then lower over long term.
- Consider One-time callables
- Explanation: The agency that issued the callable bond only has one opportunity to call the bond, if you think rates will be higher at the call date it most likely will not be called.
- Offering detail: FHLB 3.30% Coupon Due 10/30/23 Callable 10/30/20 1X Only Offered @ 3.25% YTC
Interest Rate Outlook 3: You think rates are going higher.
- Consider anytime calls
- Explanation: The agency that issued the callable bond can call at ANYTIME prior to maturity, if rates move higher the agency is less likely to call the bond away from you.
- Offering detail: FFCB 3.74% Coupon Due 10/22/25 Callable Anytime after 10/22/19 Offered @ PAR
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