Friday, November 18, 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 |
| 11/10/22 | 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 |
| 11/16/22 | 3.81 | 4.32 | 4.54 | 4.62 | 4.35 | 4.13 | 3.83 | 3.77 | 3.67 | 4.03 | 3.85 |
| 11/17/22 | 3.93 | 4.32 | 4.57 | 4.68 | 4.43 | 4.22 | 3.93 | 3.87 | 3.77 | 4.10 | 3.89 |
Source: U.S. Department of the Treasury, as of 11/17/2022
Another Brief ALCO Update from AMG
Once again, here is a quick update of the most recent trends noticed over the past few months.
Spread and Net Interest Margin (NIM) have stalled, and are now decreasing in most banks. Unlike our last report, Cost of Funds (COF) is now solidly out-pacing Yield on Earning Assets (YEA) as liquidity is becoming a widespread issue. Deposits are now at a premium and the increase in cost clearly reflects that. As everyone is well aware, the marketable securities in the liquidity calculation are too far below water to sell. Therefore, deposits are being protected to the extent possible, and borrowings along with brokered CD’s are becoming popular options. All options are expensive, sometimes dramatically increasing the COF.
Keep in mind however; it is less expensive to strategically target rate increases, rather than increasing rates across the board. Review the tiers and adjust if necessary in Money Market (MM) accounts while protecting your best depositors first. Create a new CD maturity that matches your balance sheet and future rate call. Use the new maturity and rate to satisfy an unhappy depositor, but do not give the rate without a maturity concession. All banks are different, but analyze your customer base and be proactive, manage rate increases terms most favorable to your balance sheet.
Increase in YEA lags as loan offering rates move up marginally, even as Prime keeps jumping up. Prime is now 7.0%! It is common to see an existing loan maturing at 4.5% replaced by a new loan at 5.50%. This may sound great, but it is nowhere near Prime, and is not nearly high enough to keep up with increasing COF to maintain Spread and NIM. In fact, it is now possible to buy a suitable investment that will match or beat many new loan-offering rates. We understand there are many more variables involved in lending rates other than Prime, or the securities market, but both are good benchmarks to consider when setting a loan rate.
Investment activity has slowed, as cash is in short supply, not for lack of attractive yields. In fact, as mentioned above, current MBS offerings are at or above the level of many current loan-offering rates. It is well worth the time to at least kick the tires and see what is available. Secondly, if there are investment funds available, do not make the mistake of waiting for the peak in rates. Cost-average into the market now and continue to do so, regardless if rates increase or decrease. Current yields are about 300 bps above the average yield in most community banks.
Thanks, call AMG at 800.226.1923 if you would like to discuss these or other ALM issues.
Spread and Net Interest Margin (NIM) have stalled, and are now decreasing in most banks. Unlike our last report, Cost of Funds (COF) is now solidly out-pacing Yield on Earning Assets (YEA) as liquidity is becoming a widespread issue. Deposits are now at a premium and the increase in cost clearly reflects that. As everyone is well aware, the marketable securities in the liquidity calculation are too far below water to sell. Therefore, deposits are being protected to the extent possible, and borrowings along with brokered CD’s are becoming popular options. All options are expensive, sometimes dramatically increasing the COF.
Keep in mind however; it is less expensive to strategically target rate increases, rather than increasing rates across the board. Review the tiers and adjust if necessary in Money Market (MM) accounts while protecting your best depositors first. Create a new CD maturity that matches your balance sheet and future rate call. Use the new maturity and rate to satisfy an unhappy depositor, but do not give the rate without a maturity concession. All banks are different, but analyze your customer base and be proactive, manage rate increases terms most favorable to your balance sheet.
Increase in YEA lags as loan offering rates move up marginally, even as Prime keeps jumping up. Prime is now 7.0%! It is common to see an existing loan maturing at 4.5% replaced by a new loan at 5.50%. This may sound great, but it is nowhere near Prime, and is not nearly high enough to keep up with increasing COF to maintain Spread and NIM. In fact, it is now possible to buy a suitable investment that will match or beat many new loan-offering rates. We understand there are many more variables involved in lending rates other than Prime, or the securities market, but both are good benchmarks to consider when setting a loan rate.
Investment activity has slowed, as cash is in short supply, not for lack of attractive yields. In fact, as mentioned above, current MBS offerings are at or above the level of many current loan-offering rates. It is well worth the time to at least kick the tires and see what is available. Secondly, if there are investment funds available, do not make the mistake of waiting for the peak in rates. Cost-average into the market now and continue to do so, regardless if rates increase or decrease. Current yields are about 300 bps above the average yield in most community banks.
Thanks, call AMG at 800.226.1923 if you would like to discuss these or other ALM issues.
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