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Wednesday, October 11, 2023
 

MANAGING DIRECTOR:
Scott Carrithers
 
PORTFOLIO SALES AND SERVICE:
George Morris • Chris Thompson • Sean Doherty • Kevin Doyle • Mark Tranckino
Natalie Regan • Aaron Stoffer • David Farris • Lonnie Harris • Brian Schaff • Jeff Macy
Josh Kiefer • Robert Schuyler • Tom Toburen •  Todd Czinege

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
10/04/23 5.39 5.50 5.57 5.42 5.05 4.86 4.73 4.76 4.73 5.06 4.86
10/05/23 5.39 5.50 5.56 5.38 5.02 4.82 4.69 4.73 4.72 5.08 4.89
10/06/23 5.43 5.51 5.59 5.43 5.08 4.89 4.76 4.81 4.80 5.17 4.97
10/10/23 5.42 5.49 5.55 5.36 4.97 4.76 4.62 4.66 4.65 5.03 4.83

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 10/10/2023.

Pick Up the Barbell Without Going to the Gym

Recent bond market activity has everyone wondering where interest rates are headed. For every expert on television predicting 7% rates, there is another so called expert making the case for a drastic cut in rates sooner rather than later.

In the last month, the 10 year yield has surged 55 basis points since the end of August while the front end of the curve remains largely unchanged. This bear steepening makes the case for higher yields over the long term. However, increasingly tight financial conditions to fight inflation still have the potential to send the economy into a recession bringing lower rates.

As a bank bond portfolio manager, you might find yourself with the desire add bonds to the portfolio to protect loan losses that often accompany economic downturn. The ‘higher for longer’ narrative paired with a full loan pipeline often creates a situation in which you need to be selective in how you deploy current liquidity.

Consider the following barbell strategy for both up and down rate scenarios:

Short End of the Barbell

Fannie Mae SARM Pool

  •         Monthly resetting, capless floating coupon indexed to 30 day average SOFR (currently 5.701%)
  •         +63 basis point discount margin, 6.02% yield
  •         Current income increased with higher overnight rates

Yield Table

Source: Bloomberg, LP

Discount Margin

Source: Bloomberg, LP

Long End of the Barbell

Fannie Mae DUS Pool

  •         Agency bullet alternative—6.25yr final maturity with 5.83yr of yield maintenance remaining
  •         5.25 YTM with excellent total return profile in the down scenario
  •         May qualify for CRA credit for banks in Buchanan County, MO

Yield Table

Source: Bloomberg, LP

Contact your Country Club Bank representative with comments or questions. We appreciate the opportunity to serve 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