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Tuesday, July 24, 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 |
| 7/17/18 | 1.93 | 2.02 | 2.19 | 2.39 | 2.62 | 2.69 | 2.76 | 2.83 | 2.86 | 2.91 | 2.97 |
| 7/18/18 | 1.90 | 2.00 | 2.17 | 2.43 | 2.60 | 2.69 | 2.77 | 2.84 | 2.88 | 2.93 | 2.99 |
| 7/19/18 | 1.89 | 2.00 | 2.16 | 2.40 | 2.60 | 2.67 | 2.74 | 2.81 | 2.84 | 2.90 | 2.96 |
| 7/20/18 | 1.86 | 1.99 | 2.16 | 2.41 | 2.60 | 2.68 | 2.77 | 2.85 | 2.89 | 2.96 | 3.03 |
| 7/23/18 | 1.88 | 1.99 | 2.19 | 2.42 | 2.64 | 2.72 | 2.83 | 2.92 | 2.96 | 3.04 | 3.10 |
Source: U.S. Department of the Treasury, as of 07/23/2018
Yield, Cash Flow and little extension risk…
As I am sure you have realized from recent PMR’s one of our favorite plays in today’s interest rate environment is the cash flow play, especially at these yield levels (and lower premiums) which we have not seen in years. We continue to position seasoned 15YR and seasoned 20YR pools (like the pool below) that capture well over 3% yield while maintaining a consistent cash flow in any rate scenario.
As banks, our main objective is to manage cash flow and in a rising rate environment we look to reprice as much of our balance sheet as possible and limit the extension of all cash flows. The following Seasoned 20YR 3.50% Coupon Pool will do just that.
As you can see in the first table below (Yield Table), cash flows will extend less than 1YR in a +300 BPS rate shock. To see evidence of this assumption look at the second screen (Historical Yield Table) which illustrates the pools actual behavior since it was issued 5YR’s ago. Rates have moved much higher over the past 5 years and the pool has continued to pay down very consistently. If your bias is for higher rates, structures like this should be part of the overall portfolio mix. Please reach out to your investment representative to discuss.
Yield Table
Source: Bloomberg 7/24/18
Historical Yield Table
Source: Bloomberg 7/24/18
As I am sure you have realized from recent PMR’s one of our favorite plays in today’s interest rate environment is the cash flow play, especially at these yield levels (and lower premiums) which we have not seen in years. We continue to position seasoned 15YR and seasoned 20YR pools (like the pool below) that capture well over 3% yield while maintaining a consistent cash flow in any rate scenario.
As banks, our main objective is to manage cash flow and in a rising rate environment we look to reprice as much of our balance sheet as possible and limit the extension of all cash flows. The following Seasoned 20YR 3.50% Coupon Pool will do just that.
As you can see in the first table below (Yield Table), cash flows will extend less than 1YR in a +300 BPS rate shock. To see evidence of this assumption look at the second screen (Historical Yield Table) which illustrates the pools actual behavior since it was issued 5YR’s ago. Rates have moved much higher over the past 5 years and the pool has continued to pay down very consistently. If your bias is for higher rates, structures like this should be part of the overall portfolio mix. Please reach out to your investment representative to discuss.
Yield Table
Source: Bloomberg 7/24/18
Historical Yield Table
Source: Bloomberg 7/24/18
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