| Wednesday, July 19, 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 |
| 07/12/23 | 5.25 | 5.39 | 5.48 | 5.34 | 4.75 | 4.38 | 4.07 | 3.98 | 3.86 | 4.14 | 3.95 |
| 07/13/23 | 5.25 | 5.39 | 5.46 | 5.27 | 4.64 | 4.25 | 3.95 | 3.87 | 3.77 | 4.07 | 3.90 |
| 07/14/23 | 5.26 | 5.38 | 5.47 | 5.31 | 4.77 | 4.37 | 4.04 | 3.94 | 3.83 | 4.11 | 3.92 |
| 07/17/23 | 5.29 | 5.39 | 5.46 | 5.32 | 4.74 | 4.34 | 4.02 | 3.91 | 3.81 | 4.10 | 3.93 |
| 07/18/23 | 5.27 | 5.40 | 5.48 | 5.32 | 4.76 | 4.35 | 4.00 | 3.90 | 3.78 | 4.07 | 3.89 |
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 7/18/2023
Consider the Alternative
Many of the conversations we are having with bankers continue to surround liquidity and funding costs. An increased number of banks are tapping into the brokered CD market to help meet their funding needs.
In fact, current outstanding brokered CDs have reached an all-time high at approximately $681 billion. Prior to the current interest rate cycle, the highest level was $433 billion at the end of Q2 2019. If your bank has not already utilized this strategy, then now could be a good time to consider doing so as demand remains strong to meet the supply.
When determining the term and structure of CDs to issue, it is important to consider the pricing the market demands in conjunction with your interest rate outlook. Currently, the market is requiring banks to pay a hefty premium for the call option. The below analysis reflects indicative all in cost to each call date for 2yr-10yr callable maturities as of yesterday.
In fact, current outstanding brokered CDs have reached an all-time high at approximately $681 billion. Prior to the current interest rate cycle, the highest level was $433 billion at the end of Q2 2019. If your bank has not already utilized this strategy, then now could be a good time to consider doing so as demand remains strong to meet the supply.
When determining the term and structure of CDs to issue, it is important to consider the pricing the market demands in conjunction with your interest rate outlook. Currently, the market is requiring banks to pay a hefty premium for the call option. The below analysis reflects indicative all in cost to each call date for 2yr-10yr callable maturities as of yesterday.
Source: FNE – As of 7/18, indications only - subject to change and availability.
It is important to compare the cost scenarios of longer callable CDs versus the cost of shorter bullets. If you believe rates will fall in the future, then you might be tempted to issue callables with the intent to exercise the option when rates drop. However, examining this analysis shows that issuing the shorter bullets might be the cheaper option.
For example, say you want to issue a 3yr final CD, but your rate outlook is for lower rates one year from now. In that scenario, you will most likely exercise the option bringing your actual cost to 5.75%. The current pricing on 1 year bullets is roughly 5.30%-5.45%, which is the cheaper alternative.
Please contact your Capital Markets Group representative to further the discussion on accessing the brokered CD market to meet your bank’s funding needs.
It is important to compare the cost scenarios of longer callable CDs versus the cost of shorter bullets. If you believe rates will fall in the future, then you might be tempted to issue callables with the intent to exercise the option when rates drop. However, examining this analysis shows that issuing the shorter bullets might be the cheaper option.
For example, say you want to issue a 3yr final CD, but your rate outlook is for lower rates one year from now. In that scenario, you will most likely exercise the option bringing your actual cost to 5.75%. The current pricing on 1 year bullets is roughly 5.30%-5.45%, which is the cheaper alternative.
Please contact your Capital Markets Group representative to further the discussion on accessing the brokered CD market to meet your bank’s funding needs.
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