Deposit Funding Compass Week of August 30, 2023

On the face of it, Federal Reserve Chairman Jerome Powell sounded hawkish enough at Jackson Hole to leave bond investors bracing for fresh volatility. Swap contracts moved after Powell’s speech to price in stronger odds for one more rate hike this year, but they are sticking with expectations for at least a couple of cuts by about the middle of 2024. Meanwhile this morning Gross domestic product rose at a revised 2.1% annualized pace in the second quarter, below the government’s previous estimate. The downward revision to GDP reflected less inventory and nonresidential fixed investment. Household spending, the engine of the US economy was revised higher, to a 1.7% pace.

Overall Treasuries have retreated from last weeks multi decade highs and the curve as a whole sits 10+ bps lower. CD funding levels continue to close the gap with T-bills/bonds as more banks enter the market trying to preemptively fund qtr end needs. We’re advising banks anticipating the need for qtr end funding to do just that, acting earlier in the month can provide a buffer from the deluge of supply that typically occurs the last two weeks of a quarter and inevitably inflates the cost of funds.

Please compare these All-in levels to what is being quoted from other CD firms. Our hope is that we are showing levels that are more competitive than what you might be seeing from our competitors. We have been moving robust volume consistently at coupon levels that, in many instances, are below same-term Treasury yields.