INDEPENDENT BANKER PORTFOLIOMANAGEMENT By Jim Reber, ICBA Securities Bonds with bounce Floaters are gaining popularity. Again. The financial press, economic commentators and social media sites have used a collection of terms this year that convey a certain image of market values for investment securities: “Plummet,” “Underwater,” “Leaking oil,” and “Nosedive.” I think you get the picture. Community bankers have come to grips with the notion of their bond portfolios being – ahem – “submerged” in a number of ways. Most of these thoughts and actions are quite logical and, from a safety and soundness perspective, responsible. Asset/liability risk postures are still suggesting higher net interest margins. Liquidity, in the sense of the availability of short-term assets on demand, is still plentiful. Many banks are prepared for deposit runoff if that ever happens. And then, there is once again the notion that floating rate assets can actually be a salvation from a yield and price stability point of view. Reward may be returning This column, in many cases, reflects what your correspondent hears from community bankers at conventions, seminars and old-fashioned discussions. It has been a number of years since adjustable-rate bonds have appeared in this space, mainly because they have had yields or prices almost impossible for investors to like. More recently, using the outbreak of the COVID-19 pandemic as a starting point, portfolio managers were almost forced to buy fixed-rate investments to stabilize their shrinking (“plunging?”) net interest margins. This very column’s headline in December 2020 was “The One Percenters,” and it went through the progression of what it took for an investment to yield 1.0% to maturity. Trust me when I say it was not a money-market equivalent. Now, as several rate hikes are behind us and more are likely on the way, even the shortest securities are approaching yield respectability. The remainder of this column will discuss several of the more popular options, with the hope that you can find one or more that may be suitable for your own bank’s portfolio. Do we dare to say “buoyant?” NEBRASKA INDEPENDENT BANKER 8
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