Wednesday, August 28, 2024
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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
08/21/24	5.30	5.15	4.89	4.39	3.93	3.74	3.66	3.70	3.80	4.18	4.08
08/22/24	5.31	5.17	4.94	4.46	4.01	3.81	3.72	3.77	3.85	4.22	4.13
08/23/24	5.30	5.13	4.89	4.38	3.92	3.73	3.65	3.70	3.80	4.18	4.09
08/26/24	5.33	5.13	4.91	4.41	3.94	3.75	3.67	3.72	3.82	4.19	4.11
08/27/24	5.33	5.11	4.84	4.39	3.90	3.72	3.65	3.72	3.82	4.20	4.11

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 08/27/2024.

                                                                                                                                                                                        

Is the Long Awaited "RESET" Finally Here?

 
The Fed appears poised to begin cutting the overnight rate, possibly as early as the September meeting. Whether that rate cut is 25bp’s or 50 bp’s, the much anticipated shift in monetary policy seems to be at hand. What does this mean for your bank?

If you’ve been reading this PMR for a while, you know that positively convex securities outperform all others over the course of a declining rate environment. You can get that positive convexity in a variety of ways:

1. Buy Bullet Agency or Treasury securities. These will increase in value as rates decline since they are typically void of any optionality that will take you out of the position should rates fall.
    
2. Buy discount Agency Callables or MBS securities. Securities with optionality are typically NOT used in this rate environment, but positive convexity is a total return concept and securities that can return higher overall returns (discount securities paid off at par at some future date) are a rare occurrence.

Most of us are familiar with option #1 above, but it is very rare to have both Option 1 and Option 2 available to investors, especially when the discount callable security has a likely chance to be called away at PAR.
 
This is especially true for MBS securities, and the returns as rates fall are generally significantly better than their current coupon cousins.

3.00%-4.00% coupon Agency MBS Pools can generally outperform current coupon pools in price appreciation and yield increase. You generally will give up a little bit in yield in the base case, but outperform as rates fall.
Similar story for 2.00%-3.00% Agency Callable securities with relatively short call features.
 
So take advantage of these opportunities while they are here as they likely won’t last long.

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.

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