Pub. 2 2024 Issue 2

Jim Reber (jreber@icbasecurities.com) is president and CEO of ICBA Securities, ICBA’s institutional, fixed-income broker‑dealer for community banks. One of the simplest options is a deep discount callable agency. These were issued in 2020 or 2021 as rates were buried near zero. The bonds themselves can have minuscule coupons (1% or even less) and prices in the low 90s. Usually, their yields to maturity will beat noncallable “bullets” by 10-12 basis points (.10%-.12%), with an enormous upside if they ever get called, which is less than likely. In the mortgage-backed securities (MBS) space, attractive offerings are plentiful. One generic example: Seasoned 20-year pools with 2.0% coupons have been available around 89 cents on the dollar and will have around 30 basis points more yield than the discount callable mentioned above. As mentioned in this space before, there is now an unusually wide range of coupons and prices in the secondary market, so investors can pick and choose their favorite risk/ reward profile. DELAYED RESPONSE As the comments from the Fed members so far in 2024 have pushed back the expectations of actual rate cuts into the future, so have market rates risen modestly this year. At the time of this writing, the treasury curve has added around 40 basis points (.40%) across the maturity spectrum. What this means for buyers is that there is still additional incentive to layer in some purchases into what seems to be the waning periods before a secular shift in the economic cycle. Unless, of course, the strength of the American consumer keeps producing “three” handles in triplicate. In this case, the long-anticipated recession would be on indefinite hiatus, and significant rate cuts would be a conversation for future periods. And that is something you perhaps haven’t heard before. Independent Banker A COMMUNITY BANKING PODCAST FROM ICBA icba.org/podcast LISTEN IN PRESENTING SPONSOR Your host, ICBA Chief Innovation Officer Charles Potts, speaks candidly with community banking leaders to glean actionable insights and inspiration on everything from managing talent and advocacy to the demands of the ever-shifting financial technology landscape. HEAR COMMUNITY BANKERS: • Talk about their experiences advocating for the community banking industry, innovating in ways big and small, and educating bank staff to ensure they have the skills they need to thrive. • Share their personal journeys in banking and how they have evolved professionally. • Speak openly about the industry— it’s future and evolution. CURRENCY | 23

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