| Wednesday, December 11, 2024 |
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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 |
| 12/04/24 | 4.53 | 4.45 | 4.38 | 4.22 | 4.12 | 4.08 | 4.06 | 4.12 | 4.18 | 4.44 | 4.34 |
| 12/05/24 | 4.53 | 4.44 | 4.39 | 4.23 | 4.14 | 4.10 | 4.07 | 4.12 | 4.17 | 4.42 | 4.33 |
| 12/06/24 | 4.43 | 4.39 | 4.35 | 4.18 | 4.10 | 4.06 | 4.03 | 4.08 | 4.15 | 4.41 | 4.33 |
| 12/09/24 | 4.43 | 4.39 | 4.35 | 4.19 | 4.12 | 4.08 | 4.07 | 4.13 | 4.20 | 4.46 | 4.38 |
| 12/10/24 | 4.40 | 4.38 | 4.34 | 4.21 | 4.14 | 4.10 | 4.09 | 4.15 | 4.22 | 4.49 | 4.41 |
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, L.L.P. As of: close of business 12/10/2024.
A Sign of the Season: Bond Swaps!
It’s that time of the year...The mercury is dropping, spirits are rising and thoughts turn to Christmas, candy and cheer. 2024 bond markets have experienced a year of mixed price action as yields have been volatile amidst volatile expectations and fast trading. Net of it all, your bond portfolio can help make the season bright. The age-old tradition of bond swapping might be your perfect fit this season.
In a bond swap, one or more bonds are sold with the proceeds being used to purchase other bonds with similar, but not identical, characteristics (such as maturity, credit quality, interest rate, yield or price). Though current monetary policy is officially easing (lowering rates, which tends to lift prices) there are still many loss positions in nearly every bond portfolio. Selling those lower yielding and low priced bonds will trigger a loss which will be fully recouped by new, additional income in excess of the income stream the investor would have earned had the original bonds not been sold. Bottom line: net income acquired will be greater than the sum of net cashflows sold + loss on sale.
Bond swaps are motivated by various rationales. Swapping bonds to increase yield (income) is the most common goal. However, several other factors can also be the foundation of a swapping strategy, including (but not limited to):
- Extension swaps
- Quality swaps
- Call-protection swaps
- Tax-mitigation swaps
There are a few rules to be aware of when utilizing a tax-loss swap. One vital consideration is making sure to avoid the “Wash Sale Rule.” The IRS will not allow a loss generated from a wash sale, or the sale and repurchase (within 30 days before or after the trade or settlement date) of either the exact same or substantially identical security. Avoiding a wash sale in a bond swap completed within 30 days requires investors to buy a security that is not substantially identical to the security being sold. Bonds with different issuers, maturity dates, prices or coupons should meet this test. But since “substantially identical” is not clearly defined by the IRS, be sure to check in with your CPA/tax advisor.
Your own interest rate outlook may be the most compelling motivation for which bonds to swap out of and into. There are a handful of simple metrics to survey when determining the merit of one swap vs. another. A common evaluation method is the net income comparison. Under this approach the investor would compare the net income stream of the new bonds (proposed purchase) vs. the net income stream of the old bonds (proposed sale). If net benefit to the shortest avg. maturity comparison date is positive, the swap is profitable. A very simple example of such is shown below. It illustrates realizing a loss to sell US Treasury Notes currently held to yield 0.68% and reinvesting in cash at 4.50%. The swap is marginally positive as an income advantage is gained.
Please call your CCB Capital Markets rep for further discussion and a precise swap analysis. We’re eager to assist!
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