When you get right down to it, there are only three ways to get rid of a bunch of bonds. They are determined by when the bonds will mature, how quickly the investor wants to get rid of them and how much runoff is desired. BRUCE GOETSCH National Sales Manager bgoetsch@myservion.com 651-497-4734 myservion.com We provide financial institutions and borrowers the support they need to reach their financial goals. Re-envisionyour mortgage strategy. Correspondent Retail Wholesale Delegated Conventional FHA, VA, USDA Jumbo/Non-Conforming Quality control Contract processing Contract closing Servicing Appraisal review Servion Mortgage is a DBA of Servion, Inc. NMLS #1037 Equal Housing Lender partnership channels mortgage products additional services Jim Reber (jreber@icbasecurities.com) is president and CEO of ICBA Securities, ICBA’s institutional, fixed-income broker-dealer for community banks. First, the investor cannot reinvest all the proceeds running off. In the case of the Fed, over $2 trillion will simply mature in the next two years, so if the objective is to shrink by around $1.1 trillion per year, it will buy some, but not all, of what is rolling off. Secondly, if it wants to speed up the timetable, the Fed can reinvest none of the proceeds. Both cases are examples of passive Quantitative Tightening (QT). The third, and potentially the most market-changing, is to actively sell some of the holdings. It’s been a while since the Fed used this technique, as all of the runoff back in 2018-2019 fell under the passive QT label. This option has been floated because most of the cash flow from its MBS holdings is from prepayments of loans, and since mortgage rates have skyrocketed this year, very few homeowners can now benefit from refinancing. So, actually selling some securities into the open market could be in play, and a seller of the Fed’s scale could certainly affect the market. Where does the Great Escape end? It’s anyone’s guess, particularly since the Fed will attempt a very public, highly complicated soft landing in the midst of all this. But, if the size of the balance sheet relative to Gross Domestic Product reverts to the pre-pandemic levels, it would settle out at near $4.5 trillion, around 2026. Fasten your seat belts. ■ New ICBA Securities endorsed brokerVining Sparks and Stifel Financial have completed their merger, and for the first time since 1989, ICBA Securities has a new endorsed broker. Stifel representatives will be on-site at a number of ICBA affiliate events later this year. For more information, visit stifel.com. June 2022 | 25
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