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In March this year, the Federal Reserve lifted interest rates for the first time since 2018. Today, both the bond market and FOMC have set the stage for an aggressive rate path given current inflation challenges. Given this outlook, there will be a renewed focus from regulators relating to interest
Over the last two years, the banking industry has experienced massive deposit growth, which flooded banks with excess liquidity. Most of the deposits flowed in by way of non-maturity deposit accounts, with a good portion of those funds going into noninterest-bearing accounts. These low cost or “free” deposits helped propel
The mortgage market is already off to a volatile start in 2022 with Treasury yields soaring, spreads widening, and mortgage rates breaching 4%. The Federal Reserve has made clear that it will focus on a robust monetary tightening campaign to combat high inflation by ending mortgage-backed securities (MBS) purchases and
Municipal bond investors finally have some good news regarding public pension plans after worrying about growing unfunded pension liabilities for many years. The Pew Charitable Trusts reports that aggregate state retirement systems are over 80% funded for the first time since 2008, following record investment returns for the fiscal year
On the first trading day of 2022 the US 10yr Treasury Note yield jumped above 1.60%, then traded up another 10bps in the two subsequent sessions. That was a 35bps increase in two weeks and aligned with a similar move higher for market measures of inflation expectations. The bond market
Many financial institutions saw record investment growth in 2020/21 as large stimulus payments bloated balance sheets and far outpaced loan demand. This surge in deposit growth, mixed with the large drop-in interest rates, led to collapsing margins and applied huge stresses on earnings and overall capital levels. As institutions fought
Community banks have long served as financial service leaders for their local communities. The need for new and improved infrastructure in the United States continues to rise, resulting in a growing need to finance these projects. There are multiple paths for municipalities to access capital or refinance existing financial obligations,
A long time ago there was an adage in the banking industry known as the “3-6-3 rule,” meaning the banker would gather deposits at three percent, lend them out at six percent, and be sure to arrive at the golf course by 3 o’clock in the afternoon. The implication with
By year end, over half of Government-Sponsored Enterprise “GSE” (conventional) forbearance plans and approximately 70% of Ginnie Mae forbearance plans are estimated to expire. Conventional buyouts have been minimal thus far, but an updated Flex Modification option could lead to future GSE buyouts. Buyout risk for Ginnie-backed mortgages remains greater
2020 was a year of challenges in many aspects of life, business, and the economy. The start of 2021 brought a close to a tumultuous year and opened the door to a year of economic recovery and a hope for more normal times. In March 2020, the banking industry was
The narrative for the US economy has shifted as we move into the second half of this year. Not long ago, financial markets were saturated with talk about inflation and rising interest rates, but after an initial surge from economic reopening and rebooting, the bond market is now telegraphing expectations
At the onset of the COVID-19 pandemic in the United States, strict shutdowns and stay-at-home orders created concern for the economy and municipal finances. Forecasts for tax revenue were bleak with anticipated double-digit declines, and many state and local governments braced for a serious financial blow by adjusting budgets, cutting
As the US economy continues to work its way out of the recession brought on by the Covid-19 pandemic, many economists debate what the future will hold. With inflation, asset bubbles, rising rates, and the effect of fiscal spending being hot topics during board and ALCO discussions, the question becomes
The Fear There is growing concern that the trillions of dollars of stimulus created by governments and central banks to fight the economic fallout of the coronavirus will explode through the economy and cause a surge in inflation in the second half of 2021. Sustained upward price pressures would cause
Interest rates go up, prices go down. Ask any fixed income portfolio manager in the world what the first rule of investing in bonds is and you’ll hear the phrase above or something similar. And while the notion that bond prices decline as interest rates increase is not a matter
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