Wednesday, January 22, 2020 |
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| 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 |
| 01/14/20 | 1.53 | 1.57 | 1.57 | 1.53 | 1.58 | 1.59 | 1.63 | 1.74 | 1.82 | 2.12 | 2.27 |
| 01/15/20 | 1.53 | 1.57 | 1.58 | 1.54 | 1.56 | 1.56 | 1.60 | 1.71 | 1.79 | 2.09 | 2.23 |
| 01/16/20 | 1.54 | 1.55 | 1.56 | 1.54 | 1.58 | 1.58 | 1.63 | 1.73 | 1.81 | 2.11 | 2.26 |
| 01/17/20 | 1.54 | 1.56 | 1.57 | 1.56 | 1.58 | 1.56 | 1.63 | 1.74 | 1.84 | 2.16 | 2.29 |
| 01/21/20 | 1.52 | 1.56 | 1.57 | 1.54 | 1.53 | 1.53 | 1.57 | 1.69 | 1.78 | 2.10 | 2.23 |
Source: U.S. Department of the Treasury, as of 01/21/2020
Win/Win/Win Structure with Cash Flow/Yield/No Premium Risk
The 15YR 2% coupon pool has recently been a very popular structure for bank portfolios as it is a great way to add some cash flows/yield to the portfolio without taking on the premium risk of higher coupon pools. Paying a discounted dollar price simply eliminates the negative impact faster-than-expected prepayments can have on your yield.
As you can see in the Yield Table below, should prepayments speed up, you will capture faster prepayments however your yield will come in better-than-expected as you will accrete your discount faster-than-expected.
The other side of the argument is the limited extension risk the 15YR 2.00% Coupon pool offers should rates move higher. All the while capturing 2.10% yield to a 5.2YR average life in the base case. Please see the Yield Table below and call us with questions or interest in this structure. Note, while most comparable pools have moved to a February settlement this position will settle this month.
As always thank you for your time and allowing us to share our thoughts!
Win/Win/Win Structure with Cash Flow/Yield/No Premium Risk
The 15YR 2% coupon pool has recently been a very popular structure for bank portfolios as it is a great way to add some cash flows/yield to the portfolio without taking on the premium risk of higher coupon pools. Paying a discounted dollar price simply eliminates the negative impact faster-than-expected prepayments can have on your yield.
As you can see in the Yield Table below, should prepayments speed up, you will capture faster prepayments however your yield will come in better-than-expected as you will accrete your discount faster-than-expected.
The other side of the argument is the limited extension risk the 15YR 2.00% Coupon pool offers should rates move higher. All the while capturing 2.10% yield to a 5.2YR average life in the base case. Please see the Yield Table below and call us with questions or interest in this structure. Note, while most comparable pools have moved to a February settlement this position will settle this month.
As always thank you for your time and allowing us to share our thoughts!
Source: Bloomberg
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