| Wednesday, April 3, 2024 |
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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 |
| 03/27/24 | 5.37 | 5.38 | 5.31 | 4.99 | 4.57 | 4.36 | 4.19 | 4.20 | 4.19 | 4.45 | 4.35 |
| 03/28/24 | 5.37 | 5.37 | 5.32 | 5.03 | 4.62 | 4.41 | 4.21 | 4.21 | 4.20 | 4.45 | 4.34 |
| 03/29/24 | 5.37 | 5.37 | 5.32 | 5.03 | 4.62 | 4.41 | 4.21 | 4.21 | 4.20 | 4.45 | 4.34 |
| 04/01/24 | 5.39 | 5.37 | 5.32 | 5.06 | 4.70 | 4.51 | 4.32 | 4.32 | 4.31 | 4.55 | 4.44 |
| 04/02/24 | 5.38 | 5.36 | 5.29 | 5.04 | 4.69 | 4.50 | 4.34 | 4.35 | 4.35 | 4.60 | 4.49 |
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 4/2/2024.
Challenges in Managing Your Balance Sheet? For Sure!
We have had some interesting discussions with clients and regulators in the past few months. Some of these are related to balance sheet strategies (selling short duration bonds and reinvesting in current rates as a potential security blanket against future credit losses) and some related to interest rate risk (what the inverted yield curve means for your current risk profile?)
Banks have, historically, been able to sell securities as an offset for credit losses, which typically occur in a falling interest rate environment. That is only available if you are investing in securities at current rates that can appreciate in value if rates fall. Many banks have been paralyzed by the losses in the bonds bought in 2021, and have avoided purchasing bonds for the last 2 years. That has actually worked thus far for building cash, but we are afraid that when this cycle turns, it will turn very quickly and the current opportunities will no longer be available. We understand that many banks are holding cash in anticipation of shrinking the balance sheet when BTFP ends, and there is good reason for that, however don’t ignore the health of the overall balance sheet and the need to continue to add 4.50%-5.00% yields to the portfolio while you still can.
The other issue we want to bring to your attention, is the distortion in risk presented by the inverted yield curve. Because of the limitations to the interest rate risk modeling environment, i.e. Static Balance Sheet, Linear and Parallel Rate Shifts, etc., the risk profile you see in your reports will likely not be accurate, as the inverted curve remains in all scenarios. This will tend to overstate income in a falling rate environment, especially for banks that have a high percentage of loans tied to Prime. This abnormal curve environment will affect both Earnings at Risk (EAR) simulations and MVE/EVE Risk analysis regardless of the model being used.
If you would like to explore either of these issues, feel free to reach out to your Investment representative or your AMG Rep at your convenience.
Thank you for your continued confidence in all of us here at Country Club Bank.
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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