Independent Banker - December 2024 - 26

PORTFOLIO PORTFOLIO MANAGEMENT
Will the wave return?
Falling rates should boost cash flows.
By Jim Reber, ICBA Securities
emember " the wave? " It's that
spontaneous yet somewhat
choreographed activity by sports
fans in stadiums to ramp up the
enthusiasm level. The most succinct
description I can find is from
Wikipedia: " The wave ... is a type
of metachronal rhythm achieved
in a packed stadium or other large
seated venue, when successive
groups of spectators briefly stand
and raise their arms. Immediately
upon stretching to full height, the
spectator returns to the usual seated
position. " So, there you go. And
don't expect to see " metachronal " in
this column ever again.
R
the central banks attempted to stave
off the impending economic collapse.
" Cut interest rates to zero and
motivate the consumer to consume, "
went the reasoning, " and maybe we
will limp our way through until we
can get back outside. "
Didn't see it coming
Before you turn the page, I promise
that the wave is relevant to community
bank portfolio management.
Flash back to 2020 at the outset
of the COVID-19 pandemic, when
The result of the aggressive monetary
action was, of course, a tsunami of
liquidity being dumped on community
banks. This was aggravated by the
phenomenon known as " flight to
quality " as depositors everywhere
sought sanctuaries to park their savings,
and there was no better place to do so
than community banks. However, a lot
of the cash was organically generated.
Most of the bonds owned by banks have
either an implicit or explicit call feature,
which means borrowers (bond issuers)
can pay them back early if rates fall
after issuance.
Although it's not widely
remembered, at the onset of the
pandemic we were still in a pretty
low-rate environment. Fed funds,
for example, were never higher
than 2.50% in the entire previous
decade and were just 1.75% at the
start of 2020. The totality of the
rate cuts was only 150 basis points
(1.50%), so most portfolio managers
could be forgiven for thinking their
investments were well insulated
against falling rates and the attendant
call risk.
Across the curve
Those assumptions might have been
valid had the Fed stopped at cutting
just overnight rates. It also bought
a ton of bonds in the open market,
Photo by Simonkr/iStock

Independent Banker - December 2024

Table of Contents for the Digital Edition of Independent Banker - December 2024

Contents
Independent Banker - December 2024 - Cover1
Independent Banker - December 2024 - Cover2
Independent Banker - December 2024 - Contents
Independent Banker - December 2024 - 2
Independent Banker - December 2024 - 3
Independent Banker - December 2024 - 4
Independent Banker - December 2024 - 5
Independent Banker - December 2024 - 6
Independent Banker - December 2024 - 7
Independent Banker - December 2024 - 8
Independent Banker - December 2024 - 9
Independent Banker - December 2024 - 10
Independent Banker - December 2024 - 11
Independent Banker - December 2024 - 12
Independent Banker - December 2024 - 13
Independent Banker - December 2024 - 14
Independent Banker - December 2024 - 15
Independent Banker - December 2024 - 16
Independent Banker - December 2024 - 17
Independent Banker - December 2024 - 18
Independent Banker - December 2024 - 19
Independent Banker - December 2024 - 20
Independent Banker - December 2024 - 21
Independent Banker - December 2024 - 22
Independent Banker - December 2024 - 23
Independent Banker - December 2024 - 24
Independent Banker - December 2024 - FIS1
Independent Banker - December 2024 - FIS2
Independent Banker - December 2024 - FIS3
Independent Banker - December 2024 - FIS4
Independent Banker - December 2024 - 25
Independent Banker - December 2024 - 26
Independent Banker - December 2024 - 27
Independent Banker - December 2024 - 28
Independent Banker - December 2024 - 29
Independent Banker - December 2024 - 30
Independent Banker - December 2024 - 31
Independent Banker - December 2024 - 32
Independent Banker - December 2024 - 33
Independent Banker - December 2024 - 34
Independent Banker - December 2024 - 35
Independent Banker - December 2024 - 36
Independent Banker - December 2024 - 37
Independent Banker - December 2024 - 38
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Independent Banker - December 2024 - 40
Independent Banker - December 2024 - 41
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Independent Banker - December 2024 - 68
Independent Banker - December 2024 - Cover3
Independent Banker - December 2024 - Cover4
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