Wednesday, November 16, 2022 |
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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 |
| 11/08/22 | 3.66 | 4.28 | 4.60 | 4.77 | 4.67 | 4.55 | 4.31 | 4.22 | 4.14 | 4.47 | 4.28 |
| 11/09/22 | 3.65 | 4.29 | 4.59 | 4.75 | 4.61 | 4.49 | 4.27 | 4.20 | 4.12 | 4.50 | 4.31 |
| 11/10/22 | 3.71 | 4.28 | 4.52 | 4.59 | 4.34 | 4.17 | 3.95 | 3.89 | 3.82 | 4.24 | 4.03 |
| 11/14/22 | 3.72 | 4.34 | 4.55 | 4.63 | 4.40 | 4.24 | 4.00 | 3.95 | 3.88 | 4.28 | 4.07 |
| 11/15/22 | 3.77 | 4.31 | 4.54 | 4.60 | 4.37 | 4.17 | 3.93 | 3.88 | 3.80 | 4.20 | 3.98 |
Source: U.S. Department of the Treasury, as of 11/15/2022
Another One Bites the DUS
We would like to highlight a couple prepayments that occurred in the Country Club Bank investment portfolio this month. The portfolio purchased two DUS pools back in 2020 which are mortgages secured by multifamily properties with typically a 30 year amortization term. This structure will typically have a scheduled principal balloon at some point during the life of the bond. The two bonds mentioned where purchased when the 5 year Treasury was approximately 25 basis points in yield. The pools purchased did not have largest spread in the market, but we wanted to combine limited extension risk and yield so this made sense given our investment strategy at the time. The trade recently hit a homerun when they were called at par this month. A time when the current market value was approximately $91.00. The give up yield was over 375 basis points below a treasury with the same maturity date. The portfolio incurred a small loss as we had paid a slight premium when purchased, but that loss will be made up within 2 months and is accretive to earnings over the next 2 years.
We continue to be a fan of DUS bonds for our portfolio and possibly for yours. The pools we purchased have a yield maintenance clause, which is a prepayment penalty, so if rates move lower you are generally protected from refinancing (via a prepayment penalty investor typically receives in the case of voluntary call). Even within a huge 400 basis point increase in yields, these pools performed amazingly relative to other investment options. We are actively looking for more DUS purchases for the Country Club Bank portfolio and are targeting discounted dollar prices. We like a discounted DUS pool that looks attractive to the final maturity with the huge upside kicker if they are refinanced early. Below are what we think of as the Cadillac of all DUS options:
Please reach out to your Country Club Bank representative to discuss if DUS bonds are right for your bank.
– Thank you.
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