PORTFOLIO MANAGEMENT PLAYING UNDER PAR One thing that might have gone unnoticed over the past few months is the book price for the average community bank’s bond portfolio. It has dipped below par (100 cents on the dollar), according to the more than 700 financial institutions that process bond accounting reports with The Baker Group, though individual bank results may vary. More surprisingly, this hasn’t been the case since 2009. When the Fed began raising rates in 2022, prices on the universe of bonds swung from premiums to discounts. Portfolio managers admirably continued adding bonds to the portfolio in the face of steep unrealized losses. Today, they’re being rewarded for that faith as bond portfolio yields sit at 14-year highs and book prices are below par for the first time in roughly 17 years. Given that we find ourselves in not-recently-charted territory, it’s a good time to examine what this means for the bond portfolio and some lessons we can learn from the game of golf. Protecting the Scorecard It’s not often I find myself playing under par in golf, but one key to keeping that streak going for as many holes as possible is playing smart and managing risk. Just as taking too much risk in golf can turn a bad shot into a bad hole, buying the wrong bond or reaching for yield at the wrong time can wipe out years of progress. Community Banks Should Take a Page Out of the Golfer’s Playbook By DILLON WIEDEMANN Senior Vice President of the Financial Strategies Group, The Baker Group 6 In Touch
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