| Wednesday, June 15, 2022 | ||||||||
|---|---|---|---|---|---|---|---|---|
|
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 |
| 06/08/22 | 0.89 | 1.28 | 1.77 | 2.29 | 2.78 | 2.94 | 3.03 | 3.06 | 3.03 | 3.40 | 3.18 |
| 06/09/22 | 1.05 | 1.30 | 1.81 | 2.35 | 2.83 | 2.99 | 3.07 | 3.08 | 3.04 | 3.40 | 3.18 |
| 06/10/22 | 1.10 | 1.39 | 1.98 | 2.58 | 3.06 | 3.21 | 3.25 | 3.24 | 3.15 | 3.45 | 3.20 |
| 06/13/22 | 1.13 | 1.73 | 2.25 | 2.89 | 3.40 | 3.56 | 3.56 | 3.53 | 3.43 | 3.68 | 3.42 |
| 06/14/22 | 1.19 | 1.83 | 2.43 | 3.15 | 3.45 | 3.60 | 3.61 | 3.60 | 3.49 | 3.72 | 3.45 |
Source: U.S. Department of the Treasury, as of 6/14/2022
Flattening of the Curve
We are currently in an economic environment in which inflation is running extremely hot, and that may be causing some discomfort. In case you missed Friday’s report, CPI is up 1% month-over-month and 8.6% year-over-year. We’ll find out how the Fed wants to approach this situation later today, as taming inflation has been declared its key prerogative. Chairman Powell has already committed to hiking 50 bps, and some traders are speculating a more aggressive move from the central bank (see chart below).
The 2 year-10 year spread on Treasuries has tightened dramatically this week. A paltry margin of less than 10 basis points separates this section of the curve from repeating the inversion it briefly experienced in April. Additionally, the short and intermediate portions of the curve are reaching levels not seen in over a decade. With rates hitting fresh highs we haven’t seen since before the Great Recession, it’s important to deploy a strategy that includes perspective. How great would it have been to purchase a 4% taxable equivalent yield last year?
Obviously we can’t go back and change our past investment decisions. However, when considering the best path forward, we must evaluate all options with respect to liquidity. Sitting in cash accomplishes little and earned banks even less than most investments bought at the low point of this cycle. Competition for loans has kept loan rates comparatively low versus the rapid rise in bond yields. Banks are in the business of making loans, however we are currently in a time when earnings may benefit from a bank’s next dollar being deployed into investments rather than the loan portfolio. There eventually comes a time when the value of opportunity outweighs potential fears. Please contact your CCB representative with any questions or comments.
The 2 year-10 year spread on Treasuries has tightened dramatically this week. A paltry margin of less than 10 basis points separates this section of the curve from repeating the inversion it briefly experienced in April. Additionally, the short and intermediate portions of the curve are reaching levels not seen in over a decade. With rates hitting fresh highs we haven’t seen since before the Great Recession, it’s important to deploy a strategy that includes perspective. How great would it have been to purchase a 4% taxable equivalent yield last year?
Obviously we can’t go back and change our past investment decisions. However, when considering the best path forward, we must evaluate all options with respect to liquidity. Sitting in cash accomplishes little and earned banks even less than most investments bought at the low point of this cycle. Competition for loans has kept loan rates comparatively low versus the rapid rise in bond yields. Banks are in the business of making loans, however we are currently in a time when earnings may benefit from a bank’s next dollar being deployed into investments rather than the loan portfolio. There eventually comes a time when the value of opportunity outweighs potential fears. Please contact your CCB representative with any questions or comments.
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