Tuesday, March 6, 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

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
2/27/18	1.49	1.66	1.87	2.08	2.27	2.43	2.67	2.83	2.90	3.06	3.17
2/28/18	1.50	1.65	1.86	2.07	2.25	2.42	2.65	2.80	2.87	3.02	3.13
3/1/18	1.50	1.63	1.85	2.05	2.22	2.36	2.58	2.74	2.81	2.97	3.09
3/2/18	1.50	1.65	1.86	2.06	2.25	2.40	2.63	2.79	2.86	3.02	3.14
3/5/18	1.53	1.70	1.86	2.06	2.24	2.41	2.65	2.81	2.88	3.04	3.16

                                                                                      Source: U.S. Department of the Treasury, as of 3/5/18  

Finding Value in Municipals

With the tax reform in full swing, we have been having conversations with banks about where to find the most value with regard to their bond portfolio.  Most Sub S banks have kept their portfolio mix going just as they did in 2017 because their tax rates had little change – depending on the final opinion from their accountants.  But C-Corps had quite the shift, now at 21%.  This has a big effect on calculating the taxable equivalent yield, and the overall yield on the portfolio.  Should C-Corps pump the breaks on municipals?  Not in our opinion.  There is still good value in the muni market with pre-refundings / crossover refundings, high coupon kickers and taxable municipals.

Pre-Refunded / Crossover Refunding:  Issuers will actually pre-refund an outstanding issue, usually short maturities, and hold the principal in an escrow account in the form of Treasuries.  The buyer at this point is less concerned with rating or financial statements of the issuer if they have access to the escrow agreement outlining the Treasury backed debt.  When comparing the TEY of the pre-refunded to purchasing a Treasury note, the buyer can pick up a few basis points, depending on where it falls on the yield curve.

Kickers:  For banks that are willing and able to go out a little bit longer, the buyer can pick up quite a bit of yield over MBS or Agency bullets.  There are still good spreads to be found on highly rated issuers.  The high coupon, short call, longer final maturity, have a good “kick” on the yield to maturity that will compensate you in a rising rate environment if the call is not exercised.

Taxable:  There has been a shift in the new issue market as issuers try to accommodate investor demand by issuing more taxable deals.  Secondary taxable issues have still been providing decent spreads over corresponding Treasuries where the pick up is easily observed as no calculation for a taxable equivalent yield is necessary.  What you see is what you get.

Offerings from each category below.  Contact your CCB officer for more information.

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