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Wednesday, May 21, 2025
 

MANAGING DIRECTOR:
Scott Carrithers
 
PORTFOLIO SALES AND SERVICE:
Chris Thompson • Sean Doherty • Mark Tranckino • Brian Schaff
Natalie Regan • Aaron Stoffer • David Farris • Jeff Macy 
Josh Kiefer • Todd Czinege • Trey Valentine • Cody Kreutziger

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
05/14/25 4.32 4.39 4.26 4.14 4.05 4.05 4.17 4.35 4.54 5.00 4.97
05/15/25 4.31 4.36 4.25 4.09 3.96 3.95 4.06 4.24 4.43 4.92 4.89
05/16/25 4.28 4.34 4.27 4.13 4.00 3.98 4.09 4.28 4.48 4.97 4.95
05/19/25 4.35 4.35 4.28 4.11 3.98 3.95 4.06 4.25 4.45 4.93 4.90
05/20/25 4.29 4.33 4.28 4.13 3.97 3.95 4.07 4.28 4.50 5.00 4.97

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 5/20/2025.
                                                                                                                                                                                      

CMO Floater Strategy 

Investing in floating rate securities can be an effective strategy for investment portfolios seeking to keep income current to prevailing yields and market value relatively stable (as these products tend to have minimal price volatility).  This is an attractive feature combination and rarely the case with longer dated, fixed rate alternatives.

There are various Mortgage Backed Securities (MBS) products with this feature and yield spreads are currently generous vs. historical standards.  Collateralized Mortgage Obligation (CMO) floaters are particularly cheap in today’s environment.   Bank and insurance portfolios, in particular, use CMO floaters to receive attractive yields while lowering interest rate risk (also curve risk) without adding base case duration.  The primary risk in these products is cap risk – which is when the floating coupon adjusts fully to its maximum rate and becomes fixed as yields move higher.  However, this risk is minimized with wide margins and historically high lifetime caps.  Also, these bonds typically carry less exposure from a duration and convexity standpoint, which is a function of the reset period.  CMO floaters usually reset monthly, so expected duration is very low when current coupon is lower than lifetime cap.

Another feature of the current market is discount $ prices.  We believe discount floaters provide upside at faster speeds unlike par-priced floaters.  The CMO floater illustrated below is a good example.  With a current 4.85% coupon you would need ~7 hikes from the Fed before getting capped out.  Investors are compensated over 100bps with the upside on faster prepays.   Comparison features include:
 
•    Pick over 1% vs EBA/Fed Funds
•    6.5% lifetime cap; Fed would need to hike 7x before getting capped out 
•    Book over 5.5% current yield 
•    4.85% coupon (pos arb to cash); monthly reset at SOFR +40BPS even at 0 CPR
•    Discount dollar price; upside on prepays

 
Floaters assist investors looking to take the guess work out of curve exposure.  Please reach out to your Country Club Bank representative to consider if CMO Floaters, or other floating-rate alternatives, are a good fit for your portfolio.  You might discover an attractive way to book higher current yields and lower interest rate exposure amidst the uncertainty in the investment current environment.  


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