The Importance of Asset Pricing and ALM Strategy for Credit Unions

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As if navigating the 2008 Housing Crisis and 2020 Global Pandemic weren’t enough, credit unions now face the most feared economic monster of all – inflation. CPI YOY jumped by 8.6% in May of 2022, backed by broad price increases across many sectors. Obviously, this is well above the Fed’s normal target of 2% and […]

The Importance of Asset Pricing and ALM Strategy for Banks

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As if navigating the 2008 Housing Crisis and 2020 Global Pandemic weren’t enough, banks now face the most feared economic monster of all – inflation. CPI YOY jumped by 8.6% in May of 2022, backed by broad price increases across many sectors. Obviously, this is well above the Fed’s normal target of 2% and increases […]

Interest Rate Risk in 2022: Assumption Junction

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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 rate and liquidity risk. If […]

Deposit Betas: Looking into the Future

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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 banking industry’s cost of […]

2022 Key MBS Themes and the Case for Specified Pools

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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 likely shifting the reinvestment of […]

Public Pension Update

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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 ending in 2021. In an […]

The Fed’s Balancing Act for 2022

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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 hadn’t seen a worse start […]

Is Your Investment Portfolio Properly Anchored?

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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 to stay afloat and stem […]

Communities Need Financing Assistance from Their Community Banks

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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, and they are looking to […]

Under Pressure – Net Interest Margins

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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 this old adage was that […]

What Will New Mortgage Modification Options Mean for Buyouts?

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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 than conventionals, especially as a […]

Checking In on the Banking Industry

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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 rocked when the Fed funds […]

Bond Market Behavior: Trusting the Fed on Inflation

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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 for weaker growth, lessened inflation […]

Municipal Credit Update: 2020 Financial Performance Better Than Expected

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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 expenses, and delaying non-essential projects. […]

Is Opportunity Cost Hurting Our Bottom Line?

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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 this: What should we do […]