| Wednesday, June 28, 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 |
| 06/21/23 | 5.09 | 5.29 | 5.40 | 5.25 | 4.72 | 4.30 | 3.96 | 3.84 | 3.72 | 3.99 | 3.81 |
| 06/22/23 | 5.08 | 5.30 | 5.40 | 5.27 | 4.79 | 4.38 | 4.04 | 3.93 | 3.80 | 4.07 | 3.87 |
| 06/23/23 | 5.06 | 5.30 | 5.40 | 5.25 | 4.74 | 4.33 | 3.99 | 3.87 | 3.74 | 4.01 | 3.81 |
| 06/26/23 | 5.10 | 5.31 | 5.42 | 5.27 | 4.74 | 4.31 | 3.96 | 3.85 | 3.72 | 4.00 | 3.81 |
| 06/27/23 | 5.09 | 5.29 | 5.41 | 5.32 | 4.75 | 4.39 | 4.03 | 3.90 | 3.76 | 4.04 | 3.84 |
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 6/27/2023
What to Look for in a Sale Candidate
It’s no secret that banks are still strapped for cash, and raising money in the most prudent way is critical to the long-term health of the balance sheet. In an environment featuring elevated interest rates, margins continue to compress due to increased costs of funding as depositors look for the best return on their cash. As a result, some banks have explored turning to the bond portfolio as a source of liquidity.
Before identifying what securities to sell, it’s important to address what the end goal is. Paying off expensive borrowings, taking the least amount of nominal loss, beefing up liquidity and swapping into higher market rates are all strategies that require different considerations.
Treasuries continue to be the most liquid portion of the portfolio because of the size of their market. They also have the narrowest bid/ask spreads, resulting in less price variation. Short Treasuries provide the easiest path to limiting total dollar amount of loss taken, albeit at the expense of selling at the highest yields on the inverted curve. For municipal bonds, the strongest bids are coming in for high coupon (3-5%), at least intermediate maturity (5+ years out) and decent credit quality (S&P AA/Moody’s Aa2).
As costs of funds rise, an effect is also felt in the investment portfolio. Banks holding non-bank qualified tax-free municipal bonds, also known as general market tax free bonds, will face squeezed net returns more so than banks holding only bank qualified bonds. This is due to the TEFRA haircut, a function of legislation disallowing 100% of the carrying costs for general market bonds versus only 20% for bank qualified bonds. Typically, bank qualified bonds trade at a premium to general market tax free bonds because of TEFRA exposure. However, the market for non-bank qualified tax-free municipals has held up well comparatively, demanding similar prices to their BQ counterparts. For this reason, we suggest looking at general market holdings when considering selling municipal bonds, especially if they meet the other strong bid criteria talked about in the previous paragraph.
Reach out to your Country Club Bank representative to start a conversation on raising liquidity through the sale of bonds.
Before identifying what securities to sell, it’s important to address what the end goal is. Paying off expensive borrowings, taking the least amount of nominal loss, beefing up liquidity and swapping into higher market rates are all strategies that require different considerations.
Treasuries continue to be the most liquid portion of the portfolio because of the size of their market. They also have the narrowest bid/ask spreads, resulting in less price variation. Short Treasuries provide the easiest path to limiting total dollar amount of loss taken, albeit at the expense of selling at the highest yields on the inverted curve. For municipal bonds, the strongest bids are coming in for high coupon (3-5%), at least intermediate maturity (5+ years out) and decent credit quality (S&P AA/Moody’s Aa2).
As costs of funds rise, an effect is also felt in the investment portfolio. Banks holding non-bank qualified tax-free municipal bonds, also known as general market tax free bonds, will face squeezed net returns more so than banks holding only bank qualified bonds. This is due to the TEFRA haircut, a function of legislation disallowing 100% of the carrying costs for general market bonds versus only 20% for bank qualified bonds. Typically, bank qualified bonds trade at a premium to general market tax free bonds because of TEFRA exposure. However, the market for non-bank qualified tax-free municipals has held up well comparatively, demanding similar prices to their BQ counterparts. For this reason, we suggest looking at general market holdings when considering selling municipal bonds, especially if they meet the other strong bid criteria talked about in the previous paragraph.
Reach out to your Country Club Bank representative to start a conversation on raising liquidity through the sale of bonds.
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