Pub. 2 2021 Issue 5

9 ISSUE 5 | 2021 Jim Reber, CPA, CFA is the president and CEO of ICBA Securities, ICBA’s institutional, fixed- income broker-dealer for community banks. Connect with Jim jreber@ icbasecurities.com . Subject to change It’s possible that 2021 will give portfolio watchers a case study in risk management. While it’s clear that investment managers intended to build out longer durations, it’s also clear that our old friend optionality is part of this mix. This means that any estimate of price volatility will include assumptions about current and future interest rates, and virtually all portfolios will see their durations positively correlated with market levels. Again, to oversimplify, at least some of the duration growth in the first quarter of this year can be attributed to rates rising, with some call options moving out of the money. So, just as we’ve seen a record amount of price risk installed in community bank bond portfolios, if rates stabilize or fall later this year, we’ll see durations decline, all things remaining equal. We know they are not, as long as portfolio managers believe they’re sitting on ample supplies of uninvested cash earning next-to- nothing. Nonetheless, here’s our requisite recommendation to keep your eyes on your price risk. If you’ve indulged in some duration expansion, it’s now doubly important to keep your price volatility on the rails. Effective duration is an effective tool for your risk management monitoring. Education on tap Balance Sheet Academy ICBA Securities and its exclusively endorsed broker Vining Sparks announce the 2021 Balance Sheet Academy. It will be presented in a live session Oct. 18-19 in Memphis, Tenn. This intermediate-level course will discuss a variety of topics, including interest rate products and portfolio modeling. Space is limited. Visit viningsparks.com to register. Up to 12 hours of CPE credit are offered. ICBA Securities is on the road again We will be on the convention trail in earnest this summer and fall. ICBA Securities will exhibit, sponsor, and make presentations at a number of its state association affiliates’ events between now and October. For a complete list of our upcoming appearances, check out https://www.icba.org/icba-securities/educational-events.  If you’ve indulged in some duration expansion, it’s now doubly important to keep your price volatility on the rails.