Independent Banker - April 2021 - 34
PORTFOLIO PORTFOLIO MANAGEMENT
Investment terms
decoded, part II
Let's define the latest bond jargon. By Jim Reber, ICBA Securities
material to discuss anyway. So, as
a service to community bankers
who wonder what some of the lingo
being passed around actually means,
let's play another round of the word
association game.
BAM
Could be: Exclamation by celebrity
chef Emeril Lagasse as he " kicks
things up a notch. "
Reality: An acronym for Bloomberg
Agency MBS prepayment model.
Most community banks have
signifi cant investments in mortgage
backed securities (MBS). The off ering
sheets made available by selling
brokers will include a table that
estimates the yields and average
lives given a range of prepayment
" speeds, " which are derived from
a large number of variables. These
include horizon rates, borrowers'
credit scores, geography and servicer,
among many others. BAM is one
of the more widely used models for
these projections.
s we proceed into the second
quarter of 2021 and I've happily
been building out presentations to
a number of community banking
groups, it occurs to me that the past
year has spawned another generation
of products, strategies and terms that
hadn't previously been much used,
or, in some cases didn't even exist.
Participants in the fi xed-income
market, including underwriters,
broker-dealers and analysts, are
A
quite fond of creating acronyms and
nicknames to defi ne these new terms.
In some cases, they're clever, logical
and easy to recall. In other cases,
they're curious.
Several years ago, this column
featured some of the more popular
and relevant acronyms and
nicknames in play at the time. Given
the space limitations, we didn't
get to visit all of these terms, and
since that time, we've got more
Bullets
Could be: Metal projectiles that
are expelled out of the barrel of
a fi rearm.
Reality: Debt instruments that
contain no call features. These are
only partially embraced by investors
because they have lower yields
than those that can be called away.
However, bullets also have a greater
ability to appreciate in price given
a drop in market rates. About 5% of
typical community bank's investment
portfolio is comprised of bullets.
CAR
Could be: A colloquial synonym
for automobile, a popular means of
transportation for the past 120 years
or more.
Reality: An acronym for capital
34 Q ICBA Independent Banker Q April 2021
Independent Banker - April 2021
Table of Contents for the Digital Edition of Independent Banker - April 2021
Table of Contents
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Independent Banker - April 2021 - Cover2
Independent Banker - April 2021 - Table of Contents
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