Indeed, many banks have responded to the low rates by sharply reducing their investments in Treasuries and shifting funds into mortgage-backed securities in the search for higher yields. Given the historically low interest rates at which recent mortgages have been originated or refinanced, one might expect these loans to be prepaid much more slowly than they have typically been in the past.
As a result, the effective maturity, or duration, of bank securities portfolios--and of many loan portfolios as well--has been extended. Clearly, I am not about to forecast interest rates--something I’ve already learned that central bankers never do.