Thursday, July 5, 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 • Gus Koppen

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
6/27/18	1.79	1.93	2.10	2.33	2.52	2.59	2.71	2.79	2.83	2.90	2.97
6/28/18	1.76	1.93	2.11	2.33	2.52	2.60	2.73	2.81	2.84	2.91	2.97
6/29/18	1.77	1.93	2.11	2.33	2.52	2.63	2.73	2.81	2.85	2.91	2.98
7/02/18	1.90	1.98	2.14	2.34	2.57	2.65	2.75	2.83	2.87	2.92	2.99
7/03/18	1.91	1.98	2.12	2.33	2.53	2.63	2.72	2.79	2.83	2.89	2.96

                                                                                      Source: U.S. Department of the Treasury, as of 07/03/2018 

                                                            Funding Pressures …
 

In addition to the underlying economic momentum that is bolstering the case for further increases in the overnight target rate, technical factors are pressuring short term rates higher.

For example, the net issuance of Treasury Bills climbed $200 billion in the first half of 2018 and some $300 billion of new bills are projected in the second half of the year. In addition to this glut in short-end supply, the Fed’s balance sheet unwind is accelerating, meaning the central bank is curtailing its demand for Treasury debt.  Accordingly, short-term interest rates are generally expected to continue climbing.

Regarding funding for commercial banks, thrifts and credit unions, DTC estimates the outstanding value of brokered CDs as of 6/30/18 was $346 billion, having increased 25% year-to-date.  Looking ahead, brokered CD balances are expected to climb to $560 billion by year end 2019, or approximately 30% of all time deposits.

Given the outlook for short rates, and the narrowing difference compared to long rates, issuers of brokered CDs may want to consider longer-term callable CDs, as opposed to non-callable CDs. The implication of an inverting yield curve is that rates may surprise to the downside.  Should this occur, the call option would allow issuers to reduce their cost of funding with no penalty.  As such, the option could become quite valuable, although the current price of the option is quite inexpensive.  The CD pricing chart below indicates the cost of a call option is only +5 bps, compared to issuing a 5-year non-callable CD.

Please let us know if you’d like to discuss our brokered CD program.
 
 

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.

                                                                                                                                                                                                                                                                    

No Bank Guarantee  • May Lose Value
 

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