Correspondent Blog

The Fed’s first inter-meeting rate cut since 2008 didn’t stem the fear and angst in stocks, and it added rocket fuel to the rally in Treasuries. The size of the cut (50bps to 1.00%-1.25%) was generally expected but the timing was uncertain with many, including us, thinking they would wait until the March 18 FOMC…

Here is the funny thing about the tongue-brain connection – your brain can project, with a very high degree of certainty, what it will feel like if you lick any given object such as your desk, your shirt, car hood, a stucco wall, computer keyboard – you name it. This is despite the fact that…

There has been substantial research on how prepayment speeds of residential mortgages affect the profitability of individual loans and portfolios.  Because of the homogenous nature of residential mortgages, many firms have developed highly predictive models to calculate prepayment speeds based on past behavior, portfolio makeup, and macroeconomic variables.  However, very little research is available on…

Well that was quite the week wasn’t it? It reminds us of the quote, “There are decades where nothing happens; and there are weeks where decades happen.” Last week certainly qualifies as the latter.  With stocks crashing from all-time highs to correction territory—and threatening bear market country— some respite from the  volatility seems due, but…

The coronavirus risk-off move continued yesterday and with new cases springing up the question is starting to  be raised as to when to move from a containment strategy to one of mitigation? There’s still a lot of unknowns about the virus and its lethality so the strategy switch will take more time, but if cases…

We have written numerous blogs about why banks should reconsider the risk-for-yield business model when it comes to credit or interest rate risk. The return on equity (ROE) in risk-for-yield businesses is low, and the business outcomes during downturns are adverse.  Instead, banks should construct an advisory business where taking risk may be just one…

Banks that complain about not doing enough in marketing or not having a big enough budget may just not be taking the right approach. We rarely see a bank fully utilize their content. If done right, you can get at least five times the conversions for almost the same expense as you spend now. What…

A Surfeit of Economic News this Week but Virus Headlines Will Control Trading Once again, coronavirus developments will drive trading more than any single economic release and that is certainly the case this morning.  Revelations last week of cases spreading into Korea and Japan, not to mention Singapore, spurred strong flight-to-safety trades into Treasuries.  Revelations…

If you needed any more convincing that Treasuries were mostly ignoring economic news and trading on the latest coronavirus headlines this week has  provided plenty of evidence. From blowout Empire Manufacturing numbers, to solid housing starts and permits, to a steamy PPI reading, to a blockbuster Philly Fed  factory outlook, the Leading Index popping to…

In our last blog, we reviewed ZIRP (zero interest rate policy) strategies deployed by various central banks.  We discussed how ZIRP strategies had been deemed by many economists to be ineffective over the long-term to stimulate economic growth and stoke inflation. We considered forecasts by economists, the forward interest rate market, and FOMC policy member’s…

Last week (HERE) we looked at how deposit account tiering is used, some of the objectives that banks might employ and the effectiveness of tiering in total. As discussed last week, many banks tier without objective, without data, and without supportive marketing thus rendering the methodology worthless and possibly hurtful. We challenged several commonly held…

This holiday-shortened week will continue to be dominated by coronavirus news. That one issue will drive trading more than any single economic release or Fed speak. That being said, the FOMC minutes from the January meeting will be released tomorrow but the fact the meeting took place before  the seriousness of the virus was appreciated…