Independent Banker - March 2023 - 36

PORTFOLIO PORTFOLIO MANAGEMENT
Collateral advantage
A variety of MBS pools can spread your risk.
By Jim Reber, ICBA Securities
s many community bankers
are still picking up the pieces
from their bond portfolio's meltdown
last year, it occurs to me that the
breathtaking rise in rates has created
at least one byproduct that is both
unusual in frequency and tangibly
beneficial for future performance.
Portfolio managers continue to
embrace mortgage-backed securities
(MBS) for several reasons. One is
that they are loan surrogates. Since
community banks are lenders by
definition, the monthly cash flows are
well understood and a nice fit for the
balance sheet and interest rate risk.
A
Each MBS pool is backed by
hundreds, if not thousands, of
conforming mortgages that have been
underwritten to uniform standards.
This allows securities to be compared
with one another and for prepayment
histories on given cohorts to be a basis
to project future behavior. This also is
one reason for the terrific liquidity in
the pass-through market.
What's come to light in the wildly
volatile 2022 is that borrowers'
rates can change in a hurry. In fact,
they more than doubled last year.
" Current coupon " pools are those
new securities priced nearest to par
(100.0) on issue date each month.
They increased rapidly last year and
hit levels not seen since 2003.
For example, in January 2022, the
current coupon on 30-year agency
MBS was all of 2%. By April, it had
squared to 4%. When mortgage rates
peaked in October, a par MBS issued
by Fannie Mae or Freddie Mac was all
the way up to 6%.
The opportunity
There have been several lengthy
periods recently in which an investor
in the mortgage market was limited
to buying bonds with a small range
of coupons. For the past 15 years
or so, " small range " has been
synonymous with " low. " In nine of
those years, fed funds was anchored
at 25 paltry basis points. Although
there isn't a high degree of correlation
between overnight rates and 30-year
mortgages, when money-market yields
are " accommodative " (Fed-speak),
36 // ICBA Independent Banker // March 2023
Photo by Yaroslav Danylchenko/Stocksy

Independent Banker - March 2023

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

Table of Contents
Independent Banker - March 2023 - Intro
Independent Banker - March 2023 - Cover1
Independent Banker - March 2023 - Cover2
Independent Banker - March 2023 - Table of Contents
Independent Banker - March 2023 - 2
Independent Banker - March 2023 - 3
Independent Banker - March 2023 - 4
Independent Banker - March 2023 - 5
Independent Banker - March 2023 - 6
Independent Banker - March 2023 - 7
Independent Banker - March 2023 - 8
Independent Banker - March 2023 - 9
Independent Banker - March 2023 - 10
Independent Banker - March 2023 - 11
Independent Banker - March 2023 - 12
Independent Banker - March 2023 - 13
Independent Banker - March 2023 - 14
Independent Banker - March 2023 - 15
Independent Banker - March 2023 - 16
Independent Banker - March 2023 - 17
Independent Banker - March 2023 - 18
Independent Banker - March 2023 - 19
Independent Banker - March 2023 - 20
Independent Banker - March 2023 - 21
Independent Banker - March 2023 - 22
Independent Banker - March 2023 - 23
Independent Banker - March 2023 - 24
Independent Banker - March 2023 - 25
Independent Banker - March 2023 - 26
Independent Banker - March 2023 - 27
Independent Banker - March 2023 - 28
Independent Banker - March 2023 - 29
Independent Banker - March 2023 - 30
Independent Banker - March 2023 - 31
Independent Banker - March 2023 - 32
Independent Banker - March 2023 - 33
Independent Banker - March 2023 - 34
Independent Banker - March 2023 - 35
Independent Banker - March 2023 - 36
Independent Banker - March 2023 - 37
Independent Banker - March 2023 - 38
Independent Banker - March 2023 - 39
Independent Banker - March 2023 - 40
Independent Banker - March 2023 - 41
Independent Banker - March 2023 - 42
Independent Banker - March 2023 - 43
Independent Banker - March 2023 - 44
Independent Banker - March 2023 - 45
Independent Banker - March 2023 - 46
Independent Banker - March 2023 - 47
Independent Banker - March 2023 - 48
Independent Banker - March 2023 - 49
Independent Banker - March 2023 - 50
Independent Banker - March 2023 - 51
Independent Banker - March 2023 - 52
Independent Banker - March 2023 - 53
Independent Banker - March 2023 - 54
Independent Banker - March 2023 - 55
Independent Banker - March 2023 - 56
Independent Banker - March 2023 - 57
Independent Banker - March 2023 - 58
Independent Banker - March 2023 - 59
Independent Banker - March 2023 - 60
Independent Banker - March 2023 - 61
Independent Banker - March 2023 - 62
Independent Banker - March 2023 - 63
Independent Banker - March 2023 - 64
Independent Banker - March 2023 - 65
Independent Banker - March 2023 - 66
Independent Banker - March 2023 - 67
Independent Banker - March 2023 - 68
Independent Banker - March 2023 - 69
Independent Banker - March 2023 - 70
Independent Banker - March 2023 - 71
Independent Banker - March 2023 - 72
Independent Banker - March 2023 - 73
Independent Banker - March 2023 - 74
Independent Banker - March 2023 - 75
Independent Banker - March 2023 - 76
Independent Banker - March 2023 - 77
Independent Banker - March 2023 - 78
Independent Banker - March 2023 - 79
Independent Banker - March 2023 - 80
Independent Banker - March 2023 - Cover3
Independent Banker - March 2023 - Cover4
https://www.nxtbook.com/mspc/independentbanker/august2024
https://www.nxtbook.com/mspc/independentbanker/july2024
https://www.nxtbook.com/mspc/independentbanker/june2024
https://www.nxtbook.com/mspc/independentbanker/may2024
https://www.nxtbook.com/mspc/independentbanker/april2024
https://www.nxtbook.com/mspc/independentbanker/march2024
https://www.nxtbook.com/mspc/independentbanker/february2024
https://www.nxtbook.com/mspc/independentbanker/january2024
https://www.nxtbook.com/mspc/independentbanker/december2023
https://www.nxtbook.com/mspc/independentbanker/november2023
https://www.nxtbook.com/mspc/independentbanker/october2023
https://www.nxtbook.com/mspc/independentbanker/september2023
https://www.nxtbook.com/mspc/independentbanker/august2023
https://www.nxtbook.com/mspc/independentbanker/july2023
https://www.nxtbook.com/mspc/independentbanker/june2023
https://www.nxtbook.com/mspc/independentbanker/may2023
https://www.nxtbook.com/mspc/independentbanker/april2023
https://www.nxtbook.com/mspc/independentbanker/march2023
https://www.nxtbook.com/mspc/independentbanker/february2023
https://www.nxtbook.com/mspc/independentbanker/january2023
https://www.nxtbook.com/mspc/independentbanker/december2022
https://www.nxtbook.com/mspc/independentbanker/november2022
https://www.nxtbook.com/mspc/independentbanker/october2022
https://www.nxtbook.com/mspc/independentbanker/september2022
https://www.nxtbook.com/mspc/independentbanker/august2022
https://www.nxtbook.com/mspc/independentbanker/july2022
https://www.nxtbook.com/mspc/independentbanker/june2022
https://www.nxtbook.com/mspc/independentbanker/may2022
https://www.nxtbook.com/mspc/independentbanker/april2022
https://www.nxtbook.com/mspc/independentbanker/march2022
https://www.nxtbook.com/mspc/independentbanker/february2022
https://www.nxtbook.com/mspc/independentbanker/january2022
https://www.nxtbook.com/mspc/independentbanker/december2021
https://www.nxtbook.com/mspc/independentbanker/november2021
https://www.nxtbook.com/mspc/independentbanker/october2021
https://www.nxtbook.com/mspc/independentbanker/september2021
https://www.nxtbook.com/mspc/independentbanker/august2021
https://www.nxtbook.com/mspc/independentbanker/july2021
https://www.nxtbook.com/mspc/independentbanker/june2021
https://www.nxtbook.com/mspc/independentbanker/may2021
https://www.nxtbook.com/mspc/independentbanker/april2021
https://www.nxtbook.com/mspc/independentbanker/march2021
https://www.nxtbook.com/mspc/independentbanker/february2021
https://www.nxtbook.com/mspc/independentbanker/january2021
https://www.nxtbook.com/mspc/independentbanker/december2020
https://www.nxtbook.com/mspc/independentbanker/november2020
https://www.nxtbook.com/mspc/independentbanker/october2020
https://www.nxtbook.com/mspc/independentbanker/september2020
https://www.nxtbook.com/mspc/independentbanker/august2020
https://www.nxtbook.com/mspc/independentbanker/july2020
https://www.nxtbook.com/mspc/independentbanker/june2020
https://www.nxtbook.com/mspc/independentbanker/may2020
https://www.nxtbook.com/mspc/independentbanker/april2020
https://www.nxtbook.com/mspc/independentbanker/march2020
https://www.nxtbook.com/mspc/independentbanker/february2020
https://www.nxtbook.com/mspc/independentbanker/january2020
https://www.nxtbook.com/mspc/independentbanker/december2019
https://www.nxtbook.com/mspc/independentbanker/november2019
https://www.nxtbook.com/mspc/independentbanker/october2019
https://www.nxtbook.com/mspc/independentbanker/september2019
https://www.nxtbook.com/mspc/independentbanker/august2019
https://www.nxtbook.com/mspc/independentbanker/july2019
https://www.nxtbook.com/mspc/independentbanker/june2019
https://www.nxtbook.com/mspc/independentbanker/may2019
https://www.nxtbook.com/mspc/independentbanker/april2019
https://www.nxtbook.com/mspc/independentbanker/march2019
https://www.nxtbook.com/mspc/independentbanker/february2019
https://www.nxtbook.com/mspc/independentbanker/january2019
https://www.nxtbook.com/mspc/independentbanker/december2018
https://www.nxtbook.com/mspc/independentbanker/november2018
https://www.nxtbook.com/mspc/independentbanker/october2018
https://www.nxtbook.com/mspc/independentbanker/september2018
https://www.nxtbook.com/mspc/independentbanker/august2018
https://www.nxtbook.com/mspc/independentbanker/july2018
https://www.nxtbook.com/mspc/independentbanker/june2018
https://www.nxtbook.com/mspc/independentbanker/may2018
https://www.nxtbook.com/mspc/independentbanker/april2018
https://www.nxtbook.com/mspc/independentbanker/march2018
https://www.nxtbook.com/mspc/independentbanker/february2018
https://www.nxtbook.com/mspc/independentbanker/january2018
https://www.nxtbook.com/mspc/independentbanker/december2017
https://www.nxtbook.com/mspc/independentbanker/november2017
https://www.nxtbook.com/mspc/independentbanker/october2017
https://www.nxtbook.com/mspc/independentbanker/september2017
https://www.nxtbook.com/mspc/independentbanker/august2017
https://www.nxtbook.com/mspc/independentbanker/july2017
https://www.nxtbook.com/mspc/independentbanker/june2017
https://www.nxtbook.com/mspc/independentbanker/may2017
https://www.nxtbook.com/mspc/independentbanker/april2017
https://www.nxtbookmedia.com