Wednesday, February 1, 2023 |
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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 |
| 01/25/23 | 4.52 | 4.66 | 4.82 | 4.65 | 4.13 | 3.83 | 3.55 | 3.49 | 3.44 | 3.72 | 3.59 |
| 01/26/23 | 4.47 | 4.66 | 4.83 | 4.67 | 4.18 | 3.89 | 3.59 | 3.55 | 3.50 | 3.77 | 3.64 |
| 01/27/23 | 4.49 | 4.67 | 4.82 | 4.66 | 4.20 | 3.89 | 3.61 | 3.56 | 3.50 | 3.75 | 3.62 |
| 01/30/23 | 4.54 | 4.65 | 4.77 | 4.69 | 4.23 | 3.94 | 3.66 | 3.60 | 3.53 | 3.78 | 3.65 |
| 01/31/23 | 4.52 | 4.66 | 4.82 | 4.67 | 4.20 | 3.90 | 3.61 | 3.57 | 3.51 | 3.76 | 3.63 |
The data in the table above is static as of the time it was pulled, so rates may have changed. Treat all data in this table and PMR as indications only and availability is always subject to change.
This information was pulled manually from sources we believe to be reliable. New source, as of 12/12/2022, Bloomberg, LP. As of: close of business 01/31/2023
When Is the Best Time To Buy Bonds?
The title of today’s report is somewhat of a trick question. For bond portfolio managers, let’s begin to answer it by looking at peer data. The graphs below show the volume of bond purchases (bars) overlaid with the yield of the three year US Treasury Note (line) looking back three years. The data is separated into the top 10% and bottom 10% performing community bank bond portfolios.
Source: CCB Asset Management Group, Inc. PARS Reporting
The difference in strategy for the best and worst portfolios is glaringly obvious at first sight. The top performing banks consistently stayed active in the market regardless of the interest rate cycle. The bottom 10% were unfortunate victims of the banker’s trap. They found themselves flush with cash and invested when bond yields were at their lowest point in history. As rates rose and financial conditions started to tighten, there was no money to deploy into the more attractive yields.
So back to our question…the answer is simple—we believe banks should remain in the market. However, the answer is often times difficult to execute. The banker’s trap is a real hazard that all ALCO committee’s must navigate. Banks often find themselves rich with cash and low loan demand when bonds are at their most expensive. Conversely, liquidity gets squeezed when customers are lining up at the door for loans and bonds are cheap.
A prudent solution is to carry out a disciplined approach and finding a way to make purchases. A well-diversified portfolio with regularly scheduled cash flows that can be reinvested is a good place to start in that search.
So back to our question…the answer is simple—we believe banks should remain in the market. However, the answer is often times difficult to execute. The banker’s trap is a real hazard that all ALCO committee’s must navigate. Banks often find themselves rich with cash and low loan demand when bonds are at their most expensive. Conversely, liquidity gets squeezed when customers are lining up at the door for loans and bonds are cheap.
A prudent solution is to carry out a disciplined approach and finding a way to make purchases. A well-diversified portfolio with regularly scheduled cash flows that can be reinvested is a good place to start in that search.
The more important question surrounds what products and duration to select for purchases. Regression analysis and the below decision matrix are both tools that we use in assisting portfolio managers address this question.
Please reach out to your Capital Markets Group representative to continue and expand this conversation.
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.
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