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The municipal securities market is going through unprecedented volatility amidst the COVID-19 pandemic. The initial “flight-to-quality” into U.S. Treasuries in early March also included a rally in the municipal sector that drove yields down to all-time lows. The 10yr AAA MMD benchmark index reached just 78 basis points on March
Concerns of an economic downturn escalate as the rapid spread of COVID-19 necessitates widespread event cancellations, business and school closures, and quarantines. These actions have undoubtedly caused economic activity to decline, and we’ve already seen some consequences as equity returns have plummeted. Meanwhile, plunging oil prices are leading to lower
Fate Has Earned Its Reputation 2019 may best be remembered as the year when things that weren’t supposed to happen, happened anyway. The world’s major economies weren’t supposed to have spiraled downwards, but they did. Bond yields were not supposed to have fallen, but that’s what happens when growth decelerates.
Another year in the books and another great year for the banking industry. Profits were strong, but there are always concerns on the horizon. Regulators who have been on the job for more than ten years haven’t forgotten the most recent financial crisis and the problems and bank failures that
A Quick Recap and Key Points to Ponder Where We’ve Been: It’s fair to say that 2019 was quite a transition year for Fed policy, interest rates, and the bond market. The yield on the 10-year US Treasury Note, after reaching an eight-year high of 3.24% in November of 2018,
Lessons Learned on Liquidity Risk The FDIC and other regulators continue to underscore the importance of sound liquidity risk management for financial institutions. The focus on liquidity has been building for some time as steady loan growth during the past several years has resulted in a decrease in short-term liquid
Municipal bonds remain a key sector for bank portfolio managers. It’s not uncommon for banks with assets under a billion dollars to dedicate thirty percent or more of their portfolio to municipals. Clearly, pre-and post-purchase credit analysis of municipal holdings continues to be critical. Although municipal bonds generally experience very
The Bank as a System Forty years ago, Dr. James V. Baker wrote about systems theory development in his original work on asset/liability management. He illuminated the idea that a bank is a system of complex relationships that cannot be analyzed in complete isolation. The output of one decision serves
In June 2004, the Fed increased the federal funds rate by 25 basis points, the first of many rate increases to follow. Over the next two years, the Fed increased rates from 1.00% to 5.25%, a quick and aggressive tightening cycle when compared to today’s cycle that has seen nine
The Banking Environment It is not news that community banks have struggled with sluggish net interest margin for several years. We know that funding cost hit bottom some time ago, while yields on earning assets continued to whittle lower. Older loans and bonds paid off or matured and were replaced
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