| Thursday, June 20, 2024 |
||||||||
|---|---|---|---|---|---|---|---|---|
|
MANAGING DIRECTOR: |
||||||||
|
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 |
| 06/13/24 | 5.33 | 5.39 | 5.35 | 5.08 | 4.70 | 4.44 | 4.25 | 4.24 | 4.25 | 4.50 | 4.40 |
| 06/14/24 | 5.33 | 5.39 | 5.34 | 5.07 | 4.71 | 4.44 | 4.24 | 4.22 | 4.22 | 4.47 | 4.35 |
| 06/17/24 | 5.34 | 5.39 | 5.36 | 5.11 | 4.77 | 4.51 | 4.30 | 4.28 | 4.28 | 4.52 | 4.41 |
| 06/18/24 | 5.29 | 5.38 | 5.35 | 5.09 | 4.72 | 4.44 | 4.24 | 4.22 | 4.22 | 4.47 | 4.36 |
| 06/19/24 | 5.29 | 5.38 | 5.35 | 5.09 | 4.72 | 4.44 | 4.24 | 4.22 | 4.22 | 4.47 | 4.36 |
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 06/19/2024.
FED ANNOUNCES THAT IT HAS NO NEW ANNOUNCEMENTS!
Such was the news coming out of last week’s FOMC meeting. Modest, if any, rate changes for the remainder of 2024. Ignore the fact they suggested 3-4 cuts just a few short months ago. Continued uncertainty seems to be the order of the day, so what should a prudent portfolio manager do?
If you are like many others we speak with, staying in cash doesn’t hurt, or does it? Portfolios are still significantly underwater and there are few lifelines to grab if the economy begins to falter, and with it loan credit quality. Many have begun to ask a key question, “is there anything we can do that will limit the AOCI impact, provide higher returns than Fed Funds, and something that we might hope to have a gain in should I need it later in the rate cycle?” Ahh, the proverbial Silver Bullet!
Maybe not one THING, but one STRATEGY might be an answer. We believe barbelling your asset purchases has been a time-tested strategy that works especially well in the current rate environment where the expectation for lower rates is high, but the timing remains uncertain. Our analysis has shown that a combination of 60%/40% short duration to long duration purchases can deliver superior results because they outperform FFS rates in the short end of the curve, and provide market appreciation for the time in the near future when rates are expected to begin their slide toward normalcy.
Take the following strategies as an example:
Short Barbell: Immediately repriceable CMO Floaters with 7-8% lifetime caps yielding 6.00%++, priced at a discount to PAR.
- ADVANTAGES: Beats FFS by 50+ basis points, reprices immediately with changes in the SOFR rate (which is highly correlated to FFS). Carries very little market volatility due to its 1-month duration.
Source: Bloomberg, LP / Indications only, subject to change and availability without notice
Long Barbell: Longer duration 5.00% Low Loan Balance Pools, again priced below PAR to maximize return if prepayments were to occur. Duration < 6 years @ Base Case, and significantly shorter if rates drop and prepayments occur. Yields @ 5.33%
- ADVANTAGES: Matches FFS Return immediately and more importantly LOCKS in this return for the next 4-5 years as rates are expected to fall. Likely to provide significant upside in price appreciation as rates fall, ensuring gains are available if needed later in the rate/credit cycle.
Source: Bloomberg, LP / Indications only, subject to change and availability without notice
We find this combination is a POWERFUL weapon against the coming uncertainty, and provides outsized returns in today’s market.
A 60%/40% strategy using these two securities results in an eye-popping base case yield of 5.74% and a base case duration of just 2.41 years.
We understand the reluctance to commit resources when the markets are uncertain and attention is focused on loans, but opportunity only finds those who seek it out. Let us help you find those strategies that can set you apart from the peer group.
Thank you for your continued confidence in all of us here at Country Club Bank. We look forward to hearing from 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