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 September 7, 2023

Applications for US unemployment benefits fell to the lowest level since February, underscoring businesses’ reluctance to let go of workers.  Initial unemployment claims decreased by 13,000 to 216,000 in the week ended Sept. 2, Labor Department data showed Thursday. The figure was lower than all forecasts. Fed Funds futures have priced in a pause from the…
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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…
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CU Funding Compass Week of August 23, 2023

US home purchase applications fell to the lowest level since 1995 and weak European data bolstered bets that major central banks will pause their interest-rate hikes to prevent a recession.  Traders also awaited a US preliminary revision of payrolls growth that’s seen adding fuel to the rate debate. Treasury two-year yields, which are more sensitive to imminent Federal Reserve moves,…
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Deposit Funding Compass Week of August 23, 2023

US home purchase applications fell to the lowest level since 1995 and weak European data bolstered bets that major central banks will pause their interest-rate hikes to prevent a recession.  Traders also awaited a US preliminary revision of payrolls growth that’s seen adding fuel to the rate debate. Treasury two-year yields, which are more sensitive to imminent Federal Reserve moves,…
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Capital Funding Compass August 2023

June / July saw no new reported Capital Markets transactions in the community bank subordinated debt market. With one more bank failing in July, Heartland Tri-State Bank, potential investors are going to be extremely cautious in their evaluation and purchase of bank debt and are closely watching the price movements in the regional bank index…
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CU Funding Compass Week of August 16, 2023

Traders betting that interest rates in the US will remain higher than inflation far into the future drove 10-year real yields to a 14-year high Monday. The “real”, or inflation protected yield on 10-year Treasury debt climbed more than 6 basis points to 1.84% in late New York trading, the highest level since 2009. Nominal…
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Deposit Funding Compass Week of August 16, 2023

Traders betting that interest rates in the US will remain higher than inflation far into the future drove 10-year real yields to a 14-year high Monday. The “real”, or inflation-protected yield on 10-year Treasury debt climbed more than 6 basis points to 1.84% in late New York trading, the highest level since 2009. Nominal Treasury yields also…
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Deposit Funding Compass Week of August 10, 2023

A key measure of US consumer prices rose only modestly for a second month, bolstering hopes that the Federal Reserve can tame inflation without sparking a recession. The core consumer price index, which excludes often-volatile food and energy costs, rose 0.2% for a second month. That marked the smallest back-to-back gains in more than two…
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Deposit Funding Compass Week of August 2, 2023

The US Treasury boosted the size of its quarterly sale of longer-term debt for the first time in over 2 1/2 years, testing dealers’ appetites amid an increase in government borrowing needs so alarming it spurred Fitch Ratings to cut the US sovereign rating from AAA. Treasuries dropped in wake of the release, with benchmark…
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Deposit Funding Compass Week of July 27, 2023

The 25-basis-point hike at the July FOMC meeting — to a range of 5.25%-5.50% — was as expected. While the lack of substantive changes to the policy statement suggests the majority of officials still want to keep the door open for another rate hike. Chair Jerome Powell’s somewhat dovish performance at the post-meeting news conference…
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