Sector Update

March 21, 2022

A few points to start your week

See this morning’s Market Today for a quick recap of last week
Yields ended the week drastically higher for the second week in a row
- Inflation and the Fed are driving the narrative, along with Ukraine
- Curve behavior looks consistent with lower growth and higher inflation, a tough combination
- Yields up 13-18 bps this morning, oil surging, curve slightly inverted in 3-10 year area
On the back of higher yields, spreads look attractive in many sectors looking back 12-months (see Spread Snapshot)
Posted most recent webinar slides and replays below, “Strategies in an Expected Tightening Cycle”

Individual Sector Updates – Click to Access

Fed’s tone pushes yields higher, curve flatter – waiting is less (but still) punitive

Today – Equities mixed, yields 13-18 bps higher, oil shoots higher

Equities rallied hard last week, 2022 returns still struggling

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 )

4/12 Bank: Interest Rate Swaps, Not Just for Hedging

4/14 Credit Union: Interest Rate Swaps, Not Just for Hedging

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

5/12 Credit Union: Loan Participation Market Overview

Treasury yields solidly through pre-pandemic levels, Fed and inflation take center stage

Yield on 2- and 3-year up almost 130 bps Year-to-Date

Yield on 5-year +98 bps and 10-Year +73 bps Year-to-Date

Curve Shape – 2s5s unchanged last week, 32 bps flatter YTD through this morning

Curve Shape – 2s10s 4 bps flatter last week, 56 bps flatter YTD through this morning

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: The End of Zero: Prepare for a World With Higher Rates

“Investors looking to bolster returns have funded a bevy of online consumer lenders and mortgage originators that have gone on to take market share away from banks. But those investors may be less keen on funding nonbank lenders if higher interest rates allow them to garner higher returns elsewhere. Old-fashioned banks, which are funded by deposits, should have the advantage since depositors tend not to move money out of the bank just because they can make a bit more lending their money elsewhere.”

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.