Independent Banker - April 2023 - 32

PORTFOLIO PORTFOLIO MANAGEMENT
Vince Lombardi-
shown here in his
college days at
Fordham University-
knew the value of
simplicity.
Performance? Simple
Some of the least complex bonds now have attractive returns.
By Jim Reber, ICBA Securities
" I
have the simplest tastes. I'm
always satisfied with the best. "
-Oscar Wilde
" Simplicity is the sign of true
greatness. " -Vince Lombardi
I'm guessing this is the only column
ever to appear in Independent Banker
that contains thoughts from both a
19th-century Irish playwright and a
20th-century football coach. That's,
ahem, simple enough. The trick will
be to explain how this pertains to
bond portfolio management in the
next four minutes.
Community bankers tend to favor
securities that have less, rather than
more, complexity. Some of that is due
to internalizing that risk belongs in
the loan portfolio. Some is the result
of examiners having ideas about the
suitability of certain investments
for community banks. Some is that
a collection of generic securities
probably has greater liquidity and can
be more easily converted to cash.
What's implicit in this conversation
is many investors are willing, within
reason, to sacrifice yield to achieve
other objectives. However, in 2023, a
number of securities that fall into the
non-complex category are also among
the higher yielding; specifically,
government agency bonds. So with
the ability to achieve two objectives
at once, let's take a closer look at this
unique opportunity.
Conditions met
When certain investment sectors
seem to offer more value than usual,
a typical explanation is there is an
imbalance of supply and demand.
That's partly at play here, but there's
more to it.
Government agency bonds are one
step removed from the benchmark
securities for the entire financial
universe, those being U.S. treasuries.
Agencies are obligations of your
favorite government-sponsored
enterprises (GSEs), primarily Fannie
Mae, Freddie Mac and the Federal
Home Loan Bank. Their balances do
not amortize; their only variability is if
they are called early; and around 10%
of agencies have no call features at all
and are commonly known as " bullets. "
32 // ICBA Independent Banker // April 2023
Photo by Hulton Archive/Stringer/Getty Images

Independent Banker - April 2023

Table of Contents for the Digital Edition of Independent Banker - April 2023

Independent Banker - April 2023 - Cover1
Independent Banker - April 2023 - Cover2
Independent Banker - April 2023 - 1
Independent Banker - April 2023 - 2
Independent Banker - April 2023 - 3
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Independent Banker - April 2023 - 24A
Independent Banker - April 2023 - 24B
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