a quantitative easing (QE) phase of buying a lot of bonds in the open market. The chairman made some comments about slowing down the scale of the purchases, which the market was not expecting, and longer bonds had a hard sell-off. The 10-year note’s yield rose well over 100 basis points in four months, and all the while, the Fed was still into QE. It turned out the Fed didn’t taper its purchases for over a year following the bombshell press conference. In fact, its forward guidance continued to suggest an accommodative monetary policy. Bond market yields eventually retreated to pre-Tantrum levels, as inflation never reared its head. That period of history remains a benchmark example of a bear steepener in the fixed-income market. What Could Work What if short rates remain anchored at or about where they are now, and longer rates remain annoyingly elevated? First, and to stay on the vapid track, I’d like to point out the obvious. Your community bank’s bond portfolio will continue to be underwater, and mortgage lending will remain a challenge. Cash flows from your mortgage securities will be limited, and not many bonds will be called away by the issuers. Finally, for some good news: It’s possible that longer-duration securities are reaching the point of being oversold. The 30-year Treasury has touched levels in 2025 that haven’t been seen in 18 years. If the Fed is forced to delay rate cuts, floating rate securities could offer relative value, even if the yield curve has some slope. The suggestion, therefore, is a tried-and-true strategy: the barbell. Roughly equal amounts of short and long bonds, employed in this uncertain environment, will likely produce some tactical wins. To conclude, here’s one more cliché: “Slow and steady wins the race.” Jim Reber, CPA, CFA (jreber@icbasecurities.com), is president and CEO of ICBA Securities, ICBA’s institutional, fixed-income broker-dealer for community banks. Education on Tap Community Bank Conference in November ICBA and Stifel announce the inaugural Community Bank Symposium on Nov. 12-14, in Hilton Head, South Carolina. This event will feature discussions about industry trends and opportunities and a presentation from ICBA’s Government Relations team. A variety of social activities will also be offered. For more information or to register, contact your Stifel rep or visit icbasecurities.com. 7
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