Independent Banker - June 2022 - 31

Next: Use the August recess to your advantage 
of years ago, when bond prices were
soaring while equities plummeted
as the COVID-19 pandemic swept
across the globe. Portfolio managers
knew intuitively that this was not in
the longer-term best interest of the
bank, as yields and earnings were on
the way down. It made perfect sense
then, as now, to posture the overall
balance sheet to benefi t from rising
rates, which it was hoped would one
day again prevail.
Comparison of portfolio yields to market values
Tax-equivalent yield
Gain (loss) %
Ducks on the pond
Now that day has arrived, it seems
that community bankers are again
consumed with the drop in their
portfolio's market values. Let me
quickly and pointedly state that
managers should be aware of their
price volatility posture, and also
of the current gain or loss (which
in mid-2022 is a loss). But, in true
bond portfolio tradition, let's remind
ourselves that this is a zero-sum
game, at least as it relates to the
market values. Rates are at their
highest since 2018, and the last
time portfolios were underwater
Quarter-end
Source: Stifel
for any length of time, overall yields
rose noticeably. (See table.) Perhaps
this illustrates the " playing for a
tie " metaphor.
Given that overall rate risk
exposures are stilted toward benefi ting
from this landscape, the suggestion is
to keep the eyes on the market values
and use some of the liquidity that
many banks have been warehousing.
Could rates move up from here?
Absolutely. The Fed's strategy for
winding down its balance sheet is
far more aggressive than it was last
time around, and the mountain is
much higher.
Education on Tap
2022 webinar series continues
ICBA Securities and its exclusive broker Stifel Financial present the
next installment of the 2022 Community Banking Matters webinar
series on June 14 at 10 a.m. Central. The topic is " Mortgage Market
Update and Opportunities. " To register, visit stifel.com
Busy upcoming state convention calendar
ICBA Securities will appear at more than 10 state aff iliates' conventions
in the next two months. We will exhibit, sponsor and speak, and a
number of our Stifel representatives will be on site. For a complete
convention speaking calendar, visit icbasecurities.com
The message of this column is that
2022 will likely be remembered as
a good time to have purchased fi xed
income securities. This primarily
is the residue of the attention paid
to creating balance sheets that
would benefi t from higher rates.
As Casey himself opined, " Never
make predictions, especially about
the future. " 
Jim Reber, CPA, CFA (jreber@
icbasecurities.com), is president
and CEO of ICBA Securities, ICBA's
institutional, fixed-income brokerdealer
for community banks
independentbanker.org Q 31
Tax-equivalent yield/unrealized gain (loss) %
http://www.stifel.com http://www.icbasecurities.com http://www.independentbanker.org
Independent Banker - June 2022

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