Add to that the fact that yield spreads on the products that community banks purchase are not at record levels either. It remains a challenge for C Corps to buy bank-suitable tax-free munis with any spread at all out to the 15-year maturities. (S Corps are another story for another column.) Mortgage-backed securities (MBS) spreads have trended lower since 2023 on most products, which is interesting in that rates have likewise trended lower in that time frame, when usually yield spreads widen. Both munis and MBS have benefited from a general lack of supply, particularly new issue mortgages. LOOKING UP What hasn’t yet been discussed is that nominal rates are still nearly at an 18-year high. And the theme of “reversion” previously mentioned is good news for bond investors. Positive slope, spread between oversights and everything else, and inflation trends that are gaining steam all contribute to the available yield levels. Two more notes about the current financial environment: 1. A friendly reminder that an upwardly shaped curve helps the math work on a bond swap, in which certain securities are simultaneously purchased and sold, and 2. Bank profitability has been solid so far in 2026. As the second half of the year ensues, a “loss-earn back” trade to convert some lower-yielding circa-2021 purchases into much higher-yielding 2026 levels can make sense for a lot of community banks. Your brokers can model all configurations of these trades to quantify the costs/benefits for the management team discussion. Much could happen between now and year-end to weaken the current backdrop, which appears to offer investors reasonable value. One example is persistent inflation. Chairman Warsh’s first meeting included ample acknowledgment that price stability is a higher priority than full employment. Any move closer to rate hikes could cause the yield curve to flatten from here. Nonetheless, the reversion to the longer-term averages in term relationships in the fixed income market have produced current opportunities not seen in years. Nothing mean about that. Jim Reber is managing director-ICBA relations for The Baker Group, ICBA Securities’ exclusively endorsed broker-dealer. 9 The Community Banker
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