BARBELL STRUCTURE MAY BE THE RIGHT REGIMEN As yields continue to set cyclical highs during 2023, many community bankers have asked me questions about what their next best purchase should be. Some of them have been surprised to hear an answer that I’ve been giving for the better part of this decade, even though absolute yields and the shape of the curve look nothing like, say, 2015. Since the difference in yields between short maturities and longer ones is still upside-down (i.e., the curve is inverted), most bond analysts, economists and the Federal Reserve itself are predicting that we’ll see some economic slowdown, cooling of inflation and eventually some rate cuts. (Although to be sure, they differ greatly as to the timing.) If and when we see a normalization to the shape of the curve, a portfolio structure that would perform well is a “barbell.” This month, we review the structure and the advantages of such an exercise for your investment portfolio. REPETITION AND RESISTANCE The barbell is simple to build and easy to evaluate later. It just requires an investor to define what it considers to be suitable short-term and long-term investments. Of course, community bankers have differing opinions on what counts as a long-term investment, but generally speaking, those with durations of five years and greater are considered to be on the high end of the price-risk scale. Once you’ve identified the target investments, the portfolio manager will simply purchase roughly similar amounts of both and keep the weightings balanced through ongoing monitoring. By having By Jim Reber President and CEO, ICBA Securities ICBC Preferred Provider 28 | INDEPENDENT REPORT
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