Correspondent Blog

Fed Week Arrives With another hawkish FOMC announcement due on Wednesday afternoon, Treasuries are not waiting around as the selling has already begun this morning. The 2yr Treasury is yielding 3.94%, a new cycle high, while the 10yr Treasury is trying to push above 3.50%. It peaked at 3.52% earlier this morning but currently sits…

Treasury Yields Continue to Creep Higher Another round of global risk asset selling has our markets ready to open lower and Treasuries are going along for the ride. S&P 500 equity futures are indicated lower by 51 points to 3868. The index bottomed at 3685 in June, so still a distance away but a retest…

Most financial institutions never see the actual cost of originating their products. To do so would require at least a rudimentary funds transfer pricing methodology, and many banks have not invested the time to derive a workable framework. Understanding a product’s cost structure is the first step towards accurate pricing and, more importantly, process improvement….

The banking industry’s cost of funds (COF) is highly correlated to short-term interest rates.  However, as of Q2/22, the average community bank’s COF has risen only a few basis points.  Community banks should be concerned about their COF because looking at current deposit conditions is like driving a car while looking at the rearview mirror….

August CPI Headlines the Week   Treasuries are somewhat surprisingly finding an early bid this morning while awaiting the August inflation numbers tomorrow. That will be the key event of the week and provide the final piece of data for the Fed before hiking rates next week.   The debate around 50bps or 75bps continues,…

Inflation Trends Look Positive   Treasuries are well bid this morning after reacting negatively to Fed Chair Powell’s Cato conference comments yesterday that didn’t retreat from any of the hawkishness of Jackson Hole. Treated negatively yesterday, this morning the Treasury rally is being explained as “investors feeling rate hikes are getting close to being fully…

In the olden days, if you wanted to market deposits, the head of Retail would come to Marketing and say something like – “We need to raise deposits.” Marketing would then put together some ideas for a print or digital campaign; Retail would sign off on it, and then they would roll it out. Maybe…

US Dollar Climbs to New Record High   Treasuries are finding a bit of a bid this morning after what has been a rough couple of weeks, but we suspect smooth seas will be brief as the market contends with several forces.   Corporate supply has been heavy following Labor Day and that is not…

A common strategy for community banks, when faced with a borrower that wants a 10-year fixed rate loan, is to offer a five-year fixed rate that adjusts in five years. Historically, this has worked for some customers and banks because, over the last 40 years, five-year rates have generally fallen.  As interest rates fall, a…

Goldilocks Appears in August Jobs Report   Nonfarm payrolls increased 315 thousand while the unemployment rate rose two-tenths to 3.7%. Expectations were for 298 thousand new jobs, so the actual increase was just above expectations but trailed July’s 526 thousand new jobs. The largest gains came in healthcare, professional and business services, and retail trade….

Banks are full of documents. Each document contains an extensive array of data. Just keeping track of non-disclosure agreement terms is a huge task. Then there are vendor contracts, employment agreements, statements of work, loan documents, financial statements, tax returns, deposit account documents, policies, and an array of similar applications. The challenge is that most…

ADP Employment Change Report Reappears It had been a ritual for years during jobs week that the ADP Employment Change Report would be released on Wednesday and provide a bit of a heads up for the Friday BLS jobs numbers. Alas, ADP began to vary wildly from BLS numbers during the pandemic and recovery, so…