Correspondent Blog

It’s risk-on Friday (the 13th) after several countries stepped in overnight with both fiscal and monetary plans to deal with the ongoing crisis. The biggest of the plans is from the EU with officials ready to suspend fiscal rules to increase flexibility in dealing with the crisis, and the normally fiscally conservative Germans are declaring…

The unrelenting flight-to-safety trade took a breather yesterday, but it in no way represents a turning of the tide for this morning the risk-off trade is with us once again. The impetus for the move this morning stems from the uncertain fiscal stimulus that is still being hashed out in D.C.. While some of the…

There is now little doubt that the coronavirus will spread globally and will cause more supply and demand shocks in the market. While economic activity will slow, the amount and duration of the slowdown are big unknowns. Community banks may not have exposure to Chinese markets and may not have significant exposure to the energy…

Apparently We Can Go Pretty Low If anyone thought the late February stock sell-off would be a one and done development the week just past, and this certainly morning, have cracked that illusion big-time. Historic moves are in store this morning with the 30-year bond moving overnight to a low yield of 0.70% and is…

When we talk about unforeseen Black Swan events, the COVID-19 virus fits the profile. It has come out of nowhere, taken lives, disrupted public health, altered our daily lives, causing financial market volatility, caused more than five standard deviations of movement in interest rates and likely to have a material impact on credit markets. This…

February was another strong month for the labor market but with the survey week occurring prior to news of the coronavirus reaching U.S. shores it’s likely the last solid jobs report for the next several months. And even though the report was mostly solid, the bifurcation of the economy continues with most of the strength…

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…