The Community Banker 11 purchased were Treasuries, according to Vining Sparks. That is by far the highest amount in decades. Hoped-for outcomes So what is the endgame for this strategy? Certainly, a bond portfolio stuffed full of zero-percent risk-weighted bonds that have no optionality really isn’t a recipe for outperforming one’s peers. There are several possibilities. One is that yield spreads widen, if not to 1990s levels, then at least to 2010s. When that happens, the most efficient bonds swaps of all time can be executed: sell a Treasury, and buy an identical-duration agency, MBS, or municipal bond. Another outcome is that the Treasury yield curve flattens (which nearly always happens when the Fed hikes rates), and the total returns on the longer Treasuries in the portfolio actually hold up very well. Most optimistically, loan demand shows up, and the investor can dump the Treasuries in short order and turn them into much higher-yielding credits. So there you have it. If you have recently considered buying Treasuries in lieu of the more traditional sectors, given the paltry incremental rewards, just know that Jim Reber (jreber@icbasecurities.com) is president and CEO of ICBA Securities, ICBA’s institutional, fixed-income broker-dealer for community banks. 2022 webinar series will commence soon ICBA Securities and its exclusive broker Vining Sparks will again present a seven-part webinar series, Community Banking Matters. The first event is February 22 at 10 a.m. Central. CPE credit of one hour is offered for each webinar. For more information, visit viningsparks.com. you’d be in good company. And with any luck, you are finished reading about the wonders of U.S. Treasury securities for the next 20 years. Together, let ’s make it happen. Craig McCandless Call me at 406.850.3790 Based out of Billings, Mont. serving Montana, Wyoming and Idaho Why choose Bell as your bank’s lending partner? Leverage our large lending capacity, up to $20 million on correspondent loans. Our lending limits are high enough to accommodate what you need, when you need it. We do not reparticipate any loans. ■ Commercial & ag participation loans ■ Bank stock & ownership losses ■ Bank building financing ■ Business & personal loans for bankers EQUAL HOUSING LENDER Member FDIC 28934
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