19 Hoosier Banker February 2015 position wins. It confirms what portfolio managers have always known: All else being equal, a barbell structure will outperform sequentially laddered cash flows when the yield curve flattens. There is much more to the “modified barbell” structure that we generally recommend for bank portfolios. The short end of the barbell provides a source of re-investable liquidity that allows us to maintain a smooth moving average of yield, as we add newly purchased securities. The longer end of the barbell should be populated with high-grade bankqualified municipal bonds (assuming the bank is fully taxable), where the portfolio can achieve high tax-equivalent yield to meld with the liquidity ladder. In combination, this modified barbell provides the optimal mix of liquidity and yield. The structure of cash flows has always been a key consideration for portfolio managers. As conditions change, the precise distribution of cash flows can be stretched out or pulled in, depending on specific needs. This, among other reasons discussed, is what gives the modified barbell its power and makes it a highperformance strategy. t About the Author Jeffrey F. Caughron is a managing director with The Baker Group, where he serves as chief operating officer and director of asset/liability management. He has worked in financial markets and the securities industry since 1985, with an emphasis on banking, investments and interest-rate risk management. His trading experience includes several years on the Treasury desk for an international bank on Wall Street, with subsequent positions trading mortgage-backed securities and other taxable fixed-income products for regional broker/ dealers. Caughron has expertise in broad asset/liability management issues, working with institutional accounts on controlling interest-rate risk exposures and maximizing returns. He has published numerous articles on risk management topics and is quoted frequently in the financial press. A graduate of the University of Oklahoma, Caughron has served on the faculty of several banking schools and has done consulting work for foreign banks. The author can be reached at 800-937-2257, email: jcaughron@ gobaker.com. The Baker Group is a Diamond Associate Member of the Indiana Bankers Association and an IBA Preferred Service Provider. Their Financial Future Starts with You Teach Children to Save is an ideal opportunity to start children in your community on the path to sound money management and a productive adulthood. Join with bankers across the nation as we inspire children to reach for their dreams. To learn more and to register, visit aba.com/Teach. TEACH CHILDREN TO SAVE DAY Friday, April 24, 2015 #TCTS2015
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