The magnitude and pace of the economic fallout due to the spread of the COVID-19 virus has been unprecedented. The long end of the yield curve fell precipitously in a matter of weeks, with the entire Treasury curve pricing below 1.00% for the ﬁrst time in history. Equity markets fell sharply from all-time highs, moved into bear market territory, and triggered daily circuit breakers. Fixed-income sectors like corporate bonds and mortgage-backed securities saw spreads blow out wider and liquidity in the secondary market dry up.
These challenging conditions can materially shift the risks on both the asset and liability sides of the balance sheet. Accelerated asset prepayments, elevated credit risk, and a new paradigm for deposits can lead to earnings, interest-rate risk positioning, and on-balance sheet liquidity ratios that look quite different than the previous quarter.
Several advance solutions can help members recalibrate interest-rate and liquidity risk and successfully manage through volatile markets.