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The Beginning of the End...of the Final Quarter

by Natalie Regan

2021 has been a year of continuous fluctuations and uncertainties.  This includes the ever-changing outlook and direction of several things: the Treasury market, stock market, Fed’s balance sheet, employment, pandemic, etc.  While these are out of our control, how we react and prepare our balance sheet to potential changes is well within our control.

As we begin the final quarter of 2021, the bond portfolio should receive our focus before the books are closed in now less than 90 days.

We have all witnessed the 10 year US Treasury Note (USTN) bounce around with the market-moving heavyweights being current inflation and how and when the Fed will begin tapering.  As of this writing, the 10YR USTN is at 1.47%, only 7bps over the average of the year.  While we are approximately 25bps off the Q1 high of 1.72%, we do see the potential of higher rates ahead. 

There is plenty to do while we all wait to see if higher yields do materialize:
  • Credit analysis
    • Do a deep dive on underperformers.  The most common sectors of the portfolio with possible contenders may be MBS Pools, CMO’s or Municipals. 
  • CRA completion for 2021. 
    • If organic CRA loans haven’t been sufficient for the year, consider reaching out to us to build a pool for your bank with qualifying loans in your specific market.
  • Tax loss harvesting. 
    • Has 2021 been off the charts?  Consider offsetting record income with losses in the bond portfolio.  Look to purchases made at the low of this cycle (i.e. 2020/21) with likely the lowest book yields.
  • Start early planning for 2022
    • How does the size of the current portfolio work for the current balance sheet?  Consider expected cashflows, your overall yield (with and without roll-off reinvestment) and total return.
  • Continue investing excess funds rather than sitting on the sidelines.

“Plan your work and work your plan.”

We are happy to be a guide in a 2021 wrap-up planning session and assist you in moving forward on any of these ideas for the bond portfolio.


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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