Pub. 1 2020 Issue 2

7 ISSUE 2 | 2020 The sample MBS is a 15-year Fannie Mae that is seasoned about two years and has a 3% stated rate. It has an average life of about four years, so it is also benchmarked to the five-year Treasury. At the beginning of February, it was worth around 102.10; by the end of the month, its value had risen, but only to about 103.50. In other words, it appreciated about 60% as much as the benchmark. Win some, lose some What to take away from all of this? Well, this once again illustrates how bond portfolio management is give-and-take proposition. The bonds your bank currently owns haven’t run up in price as much as you may have liked, but anything you would contemplate buying hasn’t either. On balance, that is a net win for the investor, who typically has a hold-to-maturity mindset and isn’t looking to harvest short-term gains. But maybe the more beneficial lesson to be learned from the sudden and sharp bond market rally of February is that call protection is your friend. In a rate environment in which all yields are compressed, such insurance can come at affordable rates. The recommendation is to take another, fresh look at your banks’ holdings and assess your exposure to another couple of rate cuts. If you’re a buyer, make note of the handsome spreads available. And if you’re standing pat, do so feeling secure in the likelihood that spread narrowing is likely to take place in a bond market sell-off. Interest rate volatility in the year 2020 could well give community banks a case study in how the securities in their portfolios are the same, only different.  Manage your balance sheet ICBA Securities and its exclusive broker Vining Sparks will host the 2020 Balance Sheet Academy on April 21–22 in Memphis, Tenn. Up to 12 hours of CPE are available. This is an intermediate level class for experienced portfolio managers. You can learn more and register at viningsparks.com/ education/balance- sheet-academy