Wednesday, February 22, 2023 |
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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 |
| 02/14/23 | 4.56 | 4.75 | 5.01 | 4.97 | 4.62 | 4.32 | 4.00 | 3.89 | 3.75 | 3.92 | 3.78 |
| 02/15/23 | 4.56 | 4.77 | 4.99 | 4.96 | 4.63 | 4.35 | 4.04 | 3.94 | 3.81 | 3.99 | 3.84 |
| 02/16/23 | 4.54 | 4.80 | 5.01 | 4.98 | 4.64 | 4.37 | 4.07 | 3.99 | 3.86 | 4.06 | 3.92 |
| 02/17/23 | 4.58 | 4.80 | 5.01 | 4.99 | 4.62 | 4.32 | 4.03 | 3.94 | 3.82 | 4.01 | 3.87 |
| 02/21/23 | 4.58 | 4.81 | 5.02 | 5.02 | 4.73 | 4.44 | 4.18 | 4.09 | 3.96 | 4.13 | 3.97 |
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, LP. As of: close of business 02/21/2023
Inversion Conversion
The inversion in the yield curve is one of those rare occurrences (the proverbial blinking red light) that presages economic distress, and is something that both investors and lenders should pay keen attention to. Not every recession is preceded by an inverted yield curve, but EVERY inverted yield curve has preceded a recession. It is also important to note that the deeper the inversion, the deeper the recession. The only exception to this rule over the last 50 years is the Financial Crisis of 2008-2009 in which a relatively benign curve inversion (10 bps) was followed by a prolonged recession lasting 17 months. Today’s curve inversion of 70 bp’s, is the largest since the infamous “double dip” recession of the early 1980’s, which led to many problems throughout the financial system including bank closures, massive loan losses and significantly strained capital levels. If you were around then, you will remember that one of the saving graces to those banks that survived, was the ability to replenish diminished capital levels with profits from the sale of investments. This can only happen if you have profits to take, and the temptation to remain invested in cash and/or short term investments will likely mean that there will be no profits when needed.
Let’s address the elephant in the room, which is liquidity, Right? The tide is going out on the massive liquidity infusion made during the Pandemic years, and many of us are being forced to pay up for retail deposits, or implement wholesale funding strategies to maintain adequate levels of liquid assets. We are being hit with that “double whammy”, higher funding costs, and the need to compete for loans to keep our earning asset levels up. Margins are once again under pressure. The inclination to hold cash is understandable, but in order to prepare for the next wave in the rate cycle, we believe one should also be investing out on the curve in strategies that will give them assets that can be used in the future as a profit vehicle when needed. We can’t invest the volumes of cash like we did during the pandemic, but consistent investments made every month will allow your ultimate long-term strategy to be realized.
Some notes on the Inversion Graph below:
Let’s address the elephant in the room, which is liquidity, Right? The tide is going out on the massive liquidity infusion made during the Pandemic years, and many of us are being forced to pay up for retail deposits, or implement wholesale funding strategies to maintain adequate levels of liquid assets. We are being hit with that “double whammy”, higher funding costs, and the need to compete for loans to keep our earning asset levels up. Margins are once again under pressure. The inclination to hold cash is understandable, but in order to prepare for the next wave in the rate cycle, we believe one should also be investing out on the curve in strategies that will give them assets that can be used in the future as a profit vehicle when needed. We can’t invest the volumes of cash like we did during the pandemic, but consistent investments made every month will allow your ultimate long-term strategy to be realized.
Some notes on the Inversion Graph below:
- The average inversion lasts approximately 8 months.
- The lead time from inversion to recession averages 13 months, with a low of 3 months and a high of 24 months
- The current inversion has been 8 months, and counting.
- The average recession lasts approximately 7.5 months
Prepare for the coming turbulence and please reach out to us for ways we can help.
Thanks for your continued trust and confidence.
Thanks for your continued trust and confidence.
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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