postponed into the future, presumably to chase lower interest rates. The amount of new paper issued in 2023 was over 20% less than in 2021. While some of that was due to fewer calls being exercised, the continued supply shortage has pulled down tax-equivalent yields for institutional buyers, including community banks, into “through the curve” levels. For maturities out to 10 years, investment-grade munis could yield up to 50 basis points (.50%) less than benchmark treasuries. Cogito, Ergo I Swap? The previous two sections would seem to suggest a tidy bond swap strategy. The first step in any simultaneous purchase and sale is to find the most efficient securities to sell. Those would be the ones with the lowest return to the buyer, otherwise known as a “takeout yield.” Bonds that have lower returns than treasuries are hard to come by, but that’s exactly where shorter municipals were trading at the end of 2023. Securities to replace them? I’d start with some kind of MBS. Recently, strategists from Stifel have been suggesting “hybrid ARMs,” which have reasonable yields today and the possibility of maintaining them in the future even if rates fall. Most of them come with offering prices below par, which is another rarity. Ultimately, the theme of this column is that opportunities abound for your bond portfolio at the start of the year. Some sectors look historically expensive, while others seem to offer uncommon value. Acting early in the year can get the momentum started for a prosperous 2024. Upcoming Webinars ICBA Securities and its exclusive broker Stifel will present 16 webinars throughout 2024. There will be several tracks, including balance sheet management, enterprise risk and economic outlooks. We will again offer CPE credits for these events. Be on the lookout for announcements starting early in the year. Acting early in the year can get the momentum started for a prosperous 2024. Jim Reber (jreber@icbasecurities.com) is president and CEO of ICBA Securities, ICBA’s institutional, fixed-income brokerdealer for community banks. 7 In Touch
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