Friday, October 21, 2022 |
||||||||
|---|---|---|---|---|---|---|---|---|
|
MANAGING DIRECTOR: |
||||||||
|
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 |
| 10/17/22 | 3.30 | 3.97 | 4.38 | 4.50 | 4.45 | 4.45 | 4.24 | 4.15 | 4.02 | 4.29 | 4.04 |
| 10/18/22 | 3.25 | 4.04 | 4.39 | 4.50 | 4.43 | 4.43 | 4.21 | 4.12 | 4.01 | 4.27 | 4.04 |
| 10/19/22 | 3.31 | 4.07 | 4.45 | 4.60 | 4.55 | 4.56 | 4.35 | 4.26 | 4.14 | 4.38 | 4.15 |
| 10/20/22 | 3.58 | 4.09 | 4.48 | 4.66 | 4.62 | 4.66 | 4.45 | 4.36 | 4.24 | 4.47 | 4.24 |
Source: U.S. Department of the Treasury, as of 10/20/2022
Liquidity Challenges and a New Opportunity
Liquidity has become a hot topic of conversation in the banking world recently. The restrictive monetary policy from the Federal Reserve has made its effects felt in the financial system. The FOMC has already raised the target rate 300 basis points in the last seven months and is poised to raise another cumulative 125-150 bps in the final two meetings of 2022. More and more community banks will likely have to tap into a liquidity source(s) the further we get into this tightening cycle.
Bond portfolios are traditionally a primary source of liquidity when banks are in need. However, the recent rapid increase in bond yields, price declines, have made selling securities an unreliable source. These unrealized accounting losses have essentially removed a source of liquidity for a growing number of banks. These unrealized losses can also impact a bank’s ability to borrow from a Federal Home Loan Bank (FHLB). Per their regulation, a FHLB cannot extend new advances to members with negative tangible capital, or renew existing advances for more than 30 days at a time unless requested to do so by the member’s primary federal regulator. Negative tangible capital levels are already a reality for some banks and will likely become a greater issue if rates continue to rise.
While this Portfolio Manager’s Report has painted a grim liquidity outlook, there is good news out there. The ABA, ICBA, and 70 state banking associations recently took action by drafting a letter calling for the FHFA to bring its guidance in line with other Federal regulators by looking at Tier 1 capital rather than tangible capital. While this action from national and state banking associations is hopefully a big step in keeping FHLB liquidity access open, regulatory decisions can be slow moving.
Country Club Bank has already assisted numerous banks with their funding and liquidity needs through brokered CDs. If your bank is projecting a need for liquidity in the coming months, we believe this option is an opportunity worth considering. Below is indicative pricing as of Monday, October 17. (Indications only and subject to change) Please contact your CCB representative if you have an interest in learning more and would like to receive our weekly balanCD (Brokered CD) pricing email.
Bond portfolios are traditionally a primary source of liquidity when banks are in need. However, the recent rapid increase in bond yields, price declines, have made selling securities an unreliable source. These unrealized accounting losses have essentially removed a source of liquidity for a growing number of banks. These unrealized losses can also impact a bank’s ability to borrow from a Federal Home Loan Bank (FHLB). Per their regulation, a FHLB cannot extend new advances to members with negative tangible capital, or renew existing advances for more than 30 days at a time unless requested to do so by the member’s primary federal regulator. Negative tangible capital levels are already a reality for some banks and will likely become a greater issue if rates continue to rise.
While this Portfolio Manager’s Report has painted a grim liquidity outlook, there is good news out there. The ABA, ICBA, and 70 state banking associations recently took action by drafting a letter calling for the FHFA to bring its guidance in line with other Federal regulators by looking at Tier 1 capital rather than tangible capital. While this action from national and state banking associations is hopefully a big step in keeping FHLB liquidity access open, regulatory decisions can be slow moving.
Country Club Bank has already assisted numerous banks with their funding and liquidity needs through brokered CDs. If your bank is projecting a need for liquidity in the coming months, we believe this option is an opportunity worth considering. Below is indicative pricing as of Monday, October 17. (Indications only and subject to change) Please contact your CCB representative if you have an interest in learning more and would like to receive our weekly balanCD (Brokered CD) pricing email.
(Pricing is an indication only. Actual pricing subject to current market at time of issuance.)
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