| Wednesday, June 4, 2025 |
||||||||
|---|---|---|---|---|---|---|---|---|
|
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 |
| 05/28/25 | 4.28 | 4.33 | 4.32 | 4.16 | 3.99 | 3.96 | 4.06 | 4.26 | 4.48 | 5.00 | 4.98 |
| 05/29/25 | 4.28 | 4.34 | 4.32 | 4.13 | 3.94 | 3.91 | 4.00 | 4.20 | 4.42 | 4.94 | 4.92 |
| 05/30/25 | 4.27 | 4.34 | 4.32 | 4.11 | 3.90 | 3.86 | 3.96 | 4.17 | 4.40 | 4.94 | 4.93 |
| 06/02/25 | 4.29 | 4.34 | 4.29 | 3.92 | 3.94 | 3.92 | 4.01 | 4.23 | 4.44 | 4.97 | 4.96 |
| 06/03/25 | 4.28 | 4.33 | 4.29 | 3.88 | 3.95 | 3.88 | 4.02 | 4.18 | 4.46 | 4.99 | 4.98 |
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 6/3/2025.
Why do investors buy bonds with options (calls)? To get a little extra yield of course. However, in a normal market you have to weigh the extra yield against the price risk. Queue the opportunity….
Deeply Discounted Agency Pass Through MBS Pools offer additional yield compensation for the optionality (prepay risk) while maintaining a Bullet like price profile. I have not seen this in my 20-year career and after this cycle changes, we may not see it again for some time.
See for yourself in the example below. Focus on the yields you can capture and the call protection you get when paying a deep discount for a plain vanilla pass-through Agency MBS pool.
We see this as a WIN in three different rate scenarios. In the base case as it offers some of the best spreads to any alternatives. In a down rate shock, it will maintain its steady cash flows due to the coupon being so low the borrower still has no incentive to refinance. Finally, in an up-rate shock it is already paying as slow as it possibly can therefore you are likely to experience very little extension in your cash flows.
It is these characteristics that help this optional bond mirror the price performance of a non-optional Bullet where you can experience more price appreciation in a down market than you will price depreciation in an up-rate environment. This dynamic is illustrated in the second image below.
We encourage you to consider adding structures like this to the portfolio as they will perform for you no matter the outcome of the interest rate cycle. Please reach out to your Country Club Bank Representative with any interest or questions.
Deeply Discounted Seasoned FHLMC 30 Year 2.50% Coupon Pass Thru
-
Collateral ~8.5 years of seasoning
-
4.96% Base Case Yield to 8YR average life
-
+300 Rate Shock = 4.81% Yield to 8.5 Year average life
-
-300 Rate Shock = 5.42% Yield to 6.6YR average life
-
Positive Convexed Price Profile: 20% GAIN in down 300 shock; 18% loss in up 300 shock (from purchase price)
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