For those who are not directly involved in managing a portfolio of bonds, there are many perplexing issues related to understanding the dynamics of a Fixed Income Portfolio compared to other investment vehicles. Perhaps the most vexing are the issues related to Valuation. With other types of investments, Valuation is the key to performance. However, this is not true in terms of the performance of a Fixed Income Portfolio. Yield is the key performance measure of a Bond Portfolio, with Valuation taking a very secondary position, which really represents a measure of opportunity cost. 

Something happened at the end of 2018...We finally entered the era of the dreaded "Negative Yield Curve." For some this is only a mild curiosity, but for those who manage money, this has potentially profound implications.

For centuries people were baffled by the strange markings on Egyptian tombs and temples. It was known that these markings were important to the understanding of this remarkable ancient culture. However, the key to this understanding was unavailable.

As a follow-up to our Executive Advisory on Non-Maturing Deposits from a couple of weeks ago, I would like to make the following additional observations and reminders. Over the past few years, our Clients have been bombarded by Regulatory concerns related to a potentially explosive increase in Deposit Rates in general and Non-Maturing Rates specifically when the Fed exited its Zero Interest Rate Policy (ZIRP).

During periods of change in Monetary Policy it is always wise to reassess where we have come from, where we are, and where we think we are going. It is important to ascertain that our performance, and our anticipated performance, conform to our expectations and to those of our Board and our Regulators. To the extent that there are differences, we may be required to either change direction or be prepared for some constructive conversations.

There is virtually no question about what the Fed is likely to do at their next Federal Open Market Committee meeting. Likewise, there is little debate as to whether the expected Rate increase will be followed by additional Rate increases in the future. The real question for debate is only how high, and how quickly, we might expect these increases to proceed?

​​This has led many to ponder ~ when and how should I begin lengthening my Longer Term Funding, to the extent that this is possible? However, this is not a simple question. In fact, it is a great conundrum for many bankers.

It is possible to forecast the future course for Rates on Non-Maturing Deposits. It may appear to be a riddle, or even a mystery, and it can certainly be an enigma, but there is a key. That key is totally based upon the "economic self-interest" of Banks and Bankers.