since, it is still normally sloped. As the year progresses, there is growing suspicion that the Fed’s rate hike train may be traveling the tracks more slowly than had been thought at the beginning of 2017. There are more reasons for this sentiment than we have room to explore here, but the salient point for community bank portfolio man-agers is that some fundamental strategies utilized in the last ten years are still effective right now. ROLLING DOWN THE ROAD For pure excitement, one can do much better than buying bul-let securities. These don’t have any call options, so there is no debate over when they will mature. Because of this certainty, many community banks employ the ride-the-yield curve strat-egy when the curve is positively sloped. This entails buying a series of maturities, holding them until they reach a certain remaining life, and reinvesting into a longer bullet. As long as the curve has some slope, it’s a money maker. As of this writing, the difference in the 2-and 5-year Treasury notes is 60 basis points (.60 percent). Over the last decade, which included some of the steepest curves in a generation, the average has been 85 basis points. So while the fun has dimin-ished somewhat, it’s still a reasonably good bet. PRE-RE MUNIS ARE A HIT There may be some money in your pocket that you didn’t know about. If your community bank’s portfolio includes tax-frees, you know that seasoned municipal issues con-tinue to mature and get called. In fact, these roll-offs have had a big impact on municipal spreads, which continue to be tight, as investors struggle to find the limited supply of Ban-Qualified munis. A subplot to this is the pre-refunded market. A number of out-standing seasoned munis are not yet callable, although their interest rates are in-the-money to be called. Often the munici-pality will issue more bonds in anticipation of retiring the out-standing ones as soon as possible. For the interim period, the proceeds on the new issue will be invested in Treasuries to pay off the old debt. This begets the name “pre-refunded munis.” This causes the seasoned issues to be effectively guaranteed by the Federal government, and the prices on the bonds will reflect that. This makes “pre-re’s” very logical swap candidates. There is no standard reporting mechanism to inform an investor when a pre-re has occurred, so check with your brokers to stay up-to-date on this matter. MBS CONSOLIDATIONS WORK One of the key advantages of amortizing bonds like mort-gage-backed securities (MBS) is that the investor receives some cash flow every month, whether you like it or not (and these days, you do). This assures that your investment will have a dwindling remaining balance, which eventually will be of such size that it will have very limited liquidity. It has long been the recommendation of Vining Sparks, ICBA Securities’ endorsed broker-dealer, to “clean up” odd lot piec-es of MBS, and consolidate them into fewer, larger blocks. When to do this? It’s something of a moving target, but to put a number on it, when the remaining balance on a pool is around $200,000. The liquidity of these odd lots, and therefore the market prices, will de-pend on variables such as total pool size, stated maturity date and recent prepayment history. It’s highly likely your community bank owns some or all of these in-vestment sectors men-tioned here. Collective-ly they comprise over 80 percent of commu-nity bond portfolios. So you may be able to put several of these tech-niques to good use, and demonstrate that the more things change, the more they remain the same. JIM REBER IS PRESIDENT AND CEO OF ICBA SECURITIES. HE CAN BE REACHED AT 800.422.6442 OR JREBER@ICBASECURITIES.COM. PREFERRED PROVIDER PACB ASSOCIATE MEMBER SPOTLIGHT 71 US Route 1 | Suite D Scarborough, ME 04074-7174 Phone: (207) 289-3127 Website: www.smithandwilkinson.com Contact: Quin Peel | Chief Operating Officer Email: firstname.lastname@example.org Smith & Wilkinson -Executive Search Solutions is a banking specific search firm focused on middle & senior level management, specializing in serving com-munity/regional banks.