Wednesday, January 25, 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 |
| 01/18/23 | 4.45 | 4.66 | 4.81 | 4.63 | 4.09 | 3.73 | 3.44 | 3.40 | 3.37 | 3.66 | 3.54 |
| 01/19/23 | 4.44 | 4.66 | 4.82 | 4.66 | 4.13 | 3.77 | 3.48 | 3.43 | 3.39 | 3.69 | 3.57 |
| 01/20/23 | 4.39 | 4.67 | 4.82 | 4.70 | 4.17 | 3.83 | 3.56 | 3.52 | 3.48 | 3.77 | 3.66 |
| 01/23/23 | 4.55 | 4.65 | 4.82 | 4.70 | 4.23 | 3.90 | 3.62 | 3.56 | 3.51 | 3.80 | 3.68 |
| 01/24/23 | 4.55 | 4.65 | 4.85 | 4.67 | 4.21 | 3.86 | 3.58 | 3.52 | 3.45 | 3.72 | 3.60 |
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 01/24/2023
Which 5.00% Coupon is the Best Fit for my Portfolio
After the bond rally since late October, the market is now waiting on the next round of inflation and employment data and Fed meeting in early February. Depending on your bias as to which direction the market is headed, we believe there are good opportunities available all along the treasury curve. Below we illustrate 4 different investment options, all with a 5.00% coupon:
Source: Bloomberg, LLC < Indications only / Detail and bonds are subject to change and availability 01/24/2023>
Option 1 is a GN 30yr MBS. We believe this is one of the best options in the market to maximize yield and extend duration. A 4.86% yield at base is a 129 bps spread to treasuries with a WAL of 6.47 years. The WAL on this bond shortens to 3.51 years down 100 but the yield only falls to 4.74% due to the small premium price. The WAL on the bond extends to 9.59 year up 300 with a 5 bps increase in yield.
Option 2 is a FH 15yr MBS, also with a 5.00% coupon. This bond has a 4.49% yield with a 5.06 WAL and 87 bps of spread. This has a lower yield and spread than option 1 but has less interest rate risk and only extends to a 6.34 WAL +300 with a 10 bps higher yield. Down 100 this bond shortens to a WAL of 3.66 years, similar to the 30yr in option 1.
Option 3 is a municipal bond that has returns at base similar to option 2. The 4.40% base yield represents a tax-equivalent yield to the call assuming a 29.6% tax bracket. To call is appropriate due to the 5.00% coupon and premium dollar price. The call date is 4/15/2028 and the maturity is 4/15/2033. While the base WAL (to the call) is 5.23 years, if this bond extends to maturity, the WAL goes to 10.20 years. However, the tax equivalent yield to maturity also increases to 5.55%, protecting the investor in the up rate scenario. This bond also stays outstanding until at least the call date down 100, outperforming options 1 & 2 in both the up rate and down rate scenarios relative to their respective base yields.
Option 4 is shown to the 6 month call on line 4 and to maturity on line 4A. While this bond is callable in 6 months, it offers the highest base yield. This bond also has a shorter 4 year final maturity so the extension risk is more limited. A couple other good features of this bond is that it is callable just quarterly from 7/28/2023 to 1/28/2025 and the bond becomes a 2 year bullet if it is not called.
So whether you are looking for shorter duration options, longer duration options or something in between, there is an investment with a 5.00% coupon that might be a good fit for your portfolio.
For further information on these and other investment opportunities, please reach out to your Country Club Bank sales representative. Thank You.
Option 2 is a FH 15yr MBS, also with a 5.00% coupon. This bond has a 4.49% yield with a 5.06 WAL and 87 bps of spread. This has a lower yield and spread than option 1 but has less interest rate risk and only extends to a 6.34 WAL +300 with a 10 bps higher yield. Down 100 this bond shortens to a WAL of 3.66 years, similar to the 30yr in option 1.
Option 3 is a municipal bond that has returns at base similar to option 2. The 4.40% base yield represents a tax-equivalent yield to the call assuming a 29.6% tax bracket. To call is appropriate due to the 5.00% coupon and premium dollar price. The call date is 4/15/2028 and the maturity is 4/15/2033. While the base WAL (to the call) is 5.23 years, if this bond extends to maturity, the WAL goes to 10.20 years. However, the tax equivalent yield to maturity also increases to 5.55%, protecting the investor in the up rate scenario. This bond also stays outstanding until at least the call date down 100, outperforming options 1 & 2 in both the up rate and down rate scenarios relative to their respective base yields.
Option 4 is shown to the 6 month call on line 4 and to maturity on line 4A. While this bond is callable in 6 months, it offers the highest base yield. This bond also has a shorter 4 year final maturity so the extension risk is more limited. A couple other good features of this bond is that it is callable just quarterly from 7/28/2023 to 1/28/2025 and the bond becomes a 2 year bullet if it is not called.
So whether you are looking for shorter duration options, longer duration options or something in between, there is an investment with a 5.00% coupon that might be a good fit for your portfolio.
For further information on these and other investment opportunities, please reach out to your Country Club Bank sales representative. Thank 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