Wonders never cease in the bank treasury world, what with earthquakes in the metro NYC area to eclipses of the sun, but surely the sudden flattening of the yield curve this month, which is now half as inverted as it was last month, must stir the imagination of even the most experienced bank treasurer.

On the first anniversary of the crisis last March, this month’s newsletter looks at lessons learned. One of those lessons is to beware of lessons learned, especially when they are based on “flawed, post-mortem reviews.”

This month’s newsletter discusses how bank treasurers restructured their underwater bond portfolios last quarter when the 10-year rallied in November and December. It also explains why bank treasurers, most of whom believe they have more to fear from the Fed cutting rates by 300 basis points than raising them, are more hedged for higher rates going into 2024 than they were going into 2023.

There are a lot of strange things going on in the bank treasury world, and as always, bank treasurers know to prepare for anything. You have a yield curve that is inverted for the longest time in decades, and where the marginal cost to fund a loan makes it difficult to lend profitably. You have high interest rate volatility as reflected in the MOVE index that, like the inverted yield curve, has persisted for a very long time. None of these things are good for the bank treasury business. But, on the bright side, if you have cash to invest, an overnight risk- free rate from the Fed still cannot be beat, and if you are paid to do nothing, do nothing.