Deposit Funding Compass Week of September 21, 2023

Applications for US unemployment benefits fell to the lowest level since January last week, indicating a healthy labor market that continues to support the economy. Bond traders are bracing for Treasury yields to keep pushing higher after the FOMC signaled it’s likely to hold interest rates at elevated levels well into next year. Two-year rates rose above 5.19% this morning to a fresh 17-year high, while 30-year yields climbed to 4.48%, a level last seen in 2011.

CD issuance has been typical for what we have observed the last 2-3wks of any quarter end this year but competing rates from both treasuries and other fixed-income products have detracted from liquidity a bit. We will see CD coupons move higher for the remainder of the week as issuance participants will want to maintain rate levels that are attractive enough to preserve buyer’s attentions. Lower range rates are getting overlooked. Come Monday, we expect to see weekly program issuers raise their coupon levels 10-20 BPS from where they are today which will set the market up to be in a new, considerably higher range. We would advise to get ahead of this if funding is a priority for Q3 end (or early Q4).

We have been discussing 2 & 3yr callable funding strategies with several bank clients this week, the concept/strategy is beneficial for banks taking the opinion that rates should begin to normalize towards the end of 24’. The market has seen a litany of institutions that are heavily issuing 3, 6, 9, & 12mo month bullet (non-callable) CDs on a continuing or rolling basis, this provides an alternative. The value proposition is extending duration and embedding a call option at roughly the same cost. This gives the bank monthly optionality to call the CD and return the deposit prior to maturity + there is little to no premium vs. where shorter maturities are pricing given the shape of the yield curve.

Additional Resources

Deposit Funding Compass Week of January 18, 2024

Bond market participants and prognosticators are beginning to reassess their expectations for rate cuts in 2024. This morning Federal Reserve Bank of Atlanta President Raphael Bostic urged policymakers to proceed cautiously toward interest-rate cuts given the potential economic impact of unpredictable events ranging from elections at home to conflicts around the world.  Fed officials have pushed back…
Read More...

Deposit Funding Compass Week of January 11, 2024

Americans paid more for housing and driving in December as inflation increased and the CPI registered 3.4%. On an annual basis, the so-called core measure increased 3.9%.  Early reactions show the rates market interpreting this as a challenge the Federal Reserve will cut interest rates as imminently as previously thought. The odds for a cut at the Jan…
Read More...

CU Funding Compass Week of January 5, 2024

Juxtapose data points have somewhat confused traders this morning as a sharp sell off in rates following the non-farm payroll report has been tapered by a dismal ISM release. US job growth picked up in December(+216k) and wage gains exceeded expectations, diminishing prospects for an imminent Federal Reserve interest-rate cut initially. Expectations for a March cut were…
Read More...

Deposit Funding Compass Week of January 5, 2024

Juxtapose data points have somewhat confused traders this morning as a sharp sell off in rates following the non-farm payroll report has been tapered by a dismal ISM release. US job growth picked up in December(+216k) and wage gains exceeded expectations, diminishing prospects for an imminent Federal Reserve interest-rate cut initially. Expectations for a March cut were…
Read More...

Deposit Funding Compass Week of December 28, 2023

We’d like to highlight some funding specials that are somewhat speculative given they are 10-20 BPS lower than what is currently outstanding on the same terms, however, with a lack of product overall and continued strong demand, we feel that we can move appreciable volume at the stated rates. We would be willing to firm…
Read More...

CU Funding Compass Week of December 28, 2023

We’d like to highlight some funding specials that are somewhat speculative given they are 10-20 BPS lower than what is currently outstanding on the same terms, however, with a lack of product overall and continued strong demand, we feel that we can move appreciable volume at the stated rates. We would be willing to firm…
Read More...

CU Funding Compass Week of December 20, 2023

Rates are down considerably week over week and at their lowest levels since mid-summer. Share Certificate issuance had a moderate uptick late last week/early this week but with limited days remaining in the month and two holidays to account for it looks prudent to begin focusing on 2024 business. Please see our current funding opportunities…
Read More...

Deposit Funding Compass Week of December 20, 2023

Rates are down considerably week over week and at their lowest levels since mid-summer.  CD issuance had a moderate uptick late last week/early this week but with limited days remaining in the month and two holidays to account for it looks prudent to begin focusing on 2024 business. Please see our current funding opportunities the…
Read More...

Deposit Funding Compass Week of December 14, 2023

Market Commentary: The FOMC left its policy rate unchanged yesterday at 5.25%-5.50%, as expected, but the totality of Fed communication was dovish enough to spur a significant bond rally throughout the afternoon. 2s fell almost 30bp by the end of trading, 5s fell below 4.00% for the first time since July, and 10s fell to…
Read More...

CU Funding Compass Week of December 14, 2023

Market Commentary: The FOMC left its policy rate unchanged yesterday at 5.25%-5.50%, as expected, but the totality of Fed communication was dovish enough to spur a significant bond rally throughout the afternoon. 2s fell almost 30bp by the end of trading, 5s fell below 4.00% for the first time since July, and 10s fell to…
Read More...