Wednesday, April 28, 2021 |
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MANAGING DIRECTOR: Scott Carrithers PORTFOLIO SALES AND SERVICE: George Morris • Chris Thompson • Sean Doherty • Kevin Doyle • Mark Tranckino Jeff Goble • Nicole Burczyk • Natalie Regan • Aaron Stoffer • David Farris • Lonnie Harris Brian Schaff • Josh Kiefer • Robert Schuyler • Tom Toburen • Aaron Hemphill |
| 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 |
| 04/21/21 | 0.00 | 0.03 | 0.04 | 0.07 | 0.15 | 0.32 | 0.81 | 1.24 | 1.57 | 2.16 | 2.26 |
| 04/22/21 | 0.02 | 0.03 | 0.04 | 0.06 | 0.16 | 0.32 | 0.81 | 1.24 | 1.57 | 2.13 | 2.24 |
| 04/23/21 | 0.01 | 0.03 | 0.03 | 0.07 | 0.16 | 0.34 | 0.83 | 1.26 | 1.58 | 2.14 | 2.25 |
| 04/26/21 | 0.02 | 0.03 | 0.04 | 0.06 | 0.18 | 0.35 | 0.85 | 1.27 | 1.58 | 2.13 | 2.24 |
| 04/27/21 | 0.01 | 0.01 | 0.04 | 0.06 | 0.17 | 0.36 | 0.88 | 1.32 | 1.63 | 2.18 | 2.29 |
10 Year Final Mortgage Pools Offer Protection with Rates Rising
For banks looking to invest excess cash balances, while also staying short in duration, we recommend 10 year final mortgage pools. Mortgage investing has changed over the last six months. Six months (+/-) ago we were in a position of wanting to protect our premiums paid during a historical refinancing wave. Now we are starting to think about extension risk on new purchases as rates begin to slowly move higher. This is why we believe mortgage pools with a 10 year final are such a good choice in a rising rate environment. As you can see from the pool’s characteristics listed below, the current average life is just 3.2 years in the projected base case (0 MED). In the column on the far left showing rates moving up by 300 basis points, the average life only extends to 3.9 years. That is an extension of less than 1 year when rates are moving substantially higher. That type of limited extension risk allows the investor to more accurately define when the cash flows from the investment will be returned and hopefully redeployed into higher rates.
The 10 year final mortgage pools are a great way for investors to manage their average life exposure while picking up yield on excess cash balances.
The 10 year final mortgage pools are a great way for investors to manage their average life exposure while picking up yield on excess cash balances.
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