Another Chance to Invest at Higher Rates by David Farris The yield on the 10-year Treasury (TSY) Rate since 7/01/2023 is shown in Exhibit 1. From mid-July 2023, when the Fed’s 525 basis point (bp) tightening campaign ended (began March 2022), to the end of 2023, the 10-year TSY rose 120 bps to 5% and then fell 120 bps to end 2023 back at 3.80%.  The 10-year TSY then hit its most recent peak on 4/25/2024, topping out at 4.71% before falling to its 2024 low of 3.619% on 9/16/2024.   Since that low on 9/16/2024, the 10-year TSY is up 65 bps to 4.25% (as of 10/30).  This sell off can be attributed to a number of factors including stronger than expected employment, ISM and retail sales numbers along with slightly higher inflation readings. Also occurring within this time frame was, remarkably, a 50 bp interest rate CUT by the Fed on 9/18.     These higher TSY yields since mid-September have taken the Fed Funds rate implied by the market for 2025 year-end from 3.00% to 3.75%.  Just as we saw at the end of last year, the market got ahead of itself as far as expected future easing by the Fed.  The difference this time around though, is that the Fed actually HAS STARTED TO EASE, which may perhaps increase the likelihood of continued Fed easing and lower rates going forward.  We shall see on that but regardless, rates are higher than a month ago.   Exhibit 2 shows how the entire TSY yield curve looked at all the previous key points since last October.  Whether investing on the 2yr part of the curve or 10yr part of the curve, yields are higher now vs. 9/16/2024.     This sell-off in the bond market has presented another chance to invest at higher rates and with the effective Fed Funds rate projected to reset around 4.60% next week, bonds now yield better than cash.  20yr and 30yr Agency fixed MBS offer yields from 5.25% to 5.60% at discount dollar prices.  GNMA ARMs (1yr TSY Index) and FNMA/FHLMC ARMs (SOFR Index) also offer yields over 5.00% at a discount price.  FNMA DUS and FHLMC K bonds with 4 year to 7 year maturities offer yields of 4.65% to 4.90% with spreads of 50 to 70 bps while offering solid lockout protection to lower rates.  Longer term municipal bonds offer tax-equivalent yields well in excess of 5% (S-Corp 29.6%) with 5 to 10 years of call protection.  There are great selected opportunities with 2 to 3 years of call protection in Agency callable debt as well. For further information on specific opportunities in the bond market, please contact your Country Club Bank Capital Markets Group sales representative. Details in this Pro Shop should be treated as indications only and is subject to change without notice

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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