Sector Update

April 4, 2022

A few points to start your week

See this morning’s Market Today for a quick recap of last week
Yields were mixed last week with the curve turning inverted at many points
March pricing may give pause to some as they close out the month and quarter, for perspective
- YTD 3-year Treasury is +168 bps of which 88 bps occurred in March
- YTD 5-year Treasury is +130 bps of which 74 bps occurred in March
- Intermediate TSYs (3.9 Eff Dur) had lowest monthly return in over 30 years
On the back of higher yields, spreads look attractive in many sectors looking back 12-months (see Spread Snapshot)
- With the steep rise in intermediate yields, activity was largely focused in this area last week

Individual Sector Updates – Click to Access

Today – Equities largely higher, curve slightly steeper, oil up 2.3% back over $100

Bond index returns had a particularly rough March to close out Q1-2022

For example, intermediate Treasurys posted worst single month return in over thirty years

Equities rallied (mostly) in March but still suffered lowest quarterly returns in two-years

Upcoming Webinars – (1 hour CPE available, registration opens 2 weeks prior to each webinar)

1/11: 1st Quarter Economic Outlook Webinar ( slides | webinar replay )

2/22 Bank: Positioning the Investment Portfolio for Performance ( slides | webinar replay )

2/24 Credit Union: Positioning the Investment Portfolio for Performance ( slides | webinar replay )

3/8 Bank: Balance Sheet Strategies in an Expected Tightening Cycle ( slides | webinar replay )

3/10 Credit Union: Balance Sheet Strategies in an Expected Tightening Cycle ( slides | webinar replay )

4/7: 2nd Quarter Economic Outlook Webinar (open for registration)

4/12 Bank: Interest Rate Swaps, Not Just for Hedging (open for registration)

4/14 Credit Union: Interest Rate Swaps, Not Just for Hedging (open for registration)

5/10 Bank: Balance Sheet Management and Your Loan Portfolio

5/12 Credit Union: Loan Participation Market Overview

Treasury yields move higher, curve flatter to begin 2022, 2-, 3-, and 5-year all inverted to 10-Year currently

Yield on 2- and 3-year cross well through 150 bps of increases for 2022

Yield on 5-year +130 bps and 10-Year +90 bps Year-to-Date

Curve Shape – 2s5s currently at 12 bps, very flat for this point in a rate cycle

Curve Shape – 2s10s inverted last week, currently at -4 bps, very flat for this point in a rate cycle

Mortgage rates at multi-year highs

Market moves put higher coupons at lower premiums or discounts

What We’re Reading

Market Today | Daily

Weekly Recap | Weekly, Friday

Monthly Review (February) | Monthly, 1^st business day

Brokered Deposit Rate Indications | Weekly, Monday

Investment Alternatives Matrix | Weekly, Tuesday

MBS Prepay Commentary (March) | Monthly, 5^th business day

SBA Prepay Commentary (March) | Monthly, 10^th business day

WSJ: Bond Market Suffers Worst Quarter in Decades

“Yields on Treasurys largely reflect expectations for what short-term interest rates will average over the life of a given bond. Investors dramatically increased those expectations over the past three months—driving bond prices down and yields up—thanks to a run of high inflation readings and Fed officials sounding ever more concerned about that data.”

Vining Sparks: Strategic Insight: HTM and Other Alternatives

The recent increase in interest rates and discussion of the Fed paring back its QE measures has caused many depository institutions to focus on their exposure to earnings and capital from rising interest rates. There are three primary areas where exposure to rising rates is most easily quantifiable: in net interest income simulations, in economic value of equity (EVE) simulations, and in projected price volatility for the investment portfolio. For institutions beginning to encounter exposure to higher rates, there are several strategic options available to reduce interest rate risk.