“I am really concerned about these long assets!” –At least one member on your board
The year was 1996, and I was in an asset/liability committee meeting early in my career. The topic of the conversation was interest rate risk, and someone shared a graph illustrating historical trends for the 30-year mortgage rate. At the time the rate was approaching a 30-year low of 7%. Thirty-year U.S. Treasury bonds yielded 7.5%.
The objective with this illustration was to help rationalize their decision to not follow a strategy recommendation we had made in the two previous ALCO meetings, which was to purchase government-sponsored enterprise mortgage collateralized investments funded with short-term borrowings. Despite managing a balance sheet that was clearly asset-sensitive and demanded long-duration assets, their view was that purchasing long-duration assets was an unwise strategy given rates were near the historical low.
“You’re too young to remember when mortgages were at 15%. It wasn’t pretty.”
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