Public Funds as a Strategic Anchor in a Rising-Rate Funding Market

Funding costs have reset, and funding stability matters more than it did a year ago. 

On Sept. 16, the Federal Reserve raised the federal funds target range by 25 basis points to 3.75% to 4.00%, the first increase since 2023. The median FOMC projection places year-end 2026 at a 4.1% midpoint, which implies one more increase. For CFOs and treasurers, the question has shifted from how quickly funding costs will fall to how reliably funding can be sourced as they rise. 

Market yields reflect the same pressure. As of Oct. 9, 2026, the two-year Treasury yielded 4.80% and the 10-year 5.24%, and September CPI rose 3.7% from a year earlier. Rate-board CDs, brokered CDs and FHLB advances are priced off the market curve, so each reprices as yields rise. Deposit competition follows: after the September increase, retail CD offerings at 4.00% APY or higher rose by 180 to 3,780, according to CD Valet. 

Public funds occupy a distinct position in this environment, but they are not rate-insensitive. Public entities can access Treasuries and local government investment pools (LGIPs) at yields near 4%, and fiduciary standards require them to compare. What sets public funds apart is structure. They are governed by statute and fiscal calendars, and balances move with tax collections, budget cycles and capital expenditures in patterns that are generally visible and planned. That predictability supports liquidity forecasting and stress testing. Banks should expect public funds to price at market. 

Public funds still require disciplined oversight. Concentration risk can develop when public entities share similar fiscal calendars. Collateral management also deserves attention when securities are carried below par, whether collateral is provided through pledged securities or Federal Home Loan Bank letters of credit. Reciprocal deposits can reduce collateral demands by placing balances within FDIC insurance limits across a network, subject to state law and the entity's investment policy. 

Diversification enhances the strategic value of public funds. When public entities hold cash at 4%, they manage it actively, which raises the importance of multiple access points across geography, fiscal cycles and structures. Banks can access public deposits through direct municipal relationships, advisors and state-authorized LGIPs, which help smooth seasonal volatility and broaden funding sources. Accurate brokered and non-brokered classification and documentation remain essential, and a period of rising funding costs raises the stakes, as misclassification can result in higher FDIC assessments and supervisory challenges. 

Conclusion 

Ultimately, public funds can be viewed as opportunistic or seasonal deposits. When framed correctly alongside core deposits, and integrated with structure, diversification and discipline, they can serve as a strategic anchor within a modern wholesale funding framework. Projections are not guarantees, and funding plans should be tested against both higher and lower rate paths. 

Data as of October 9 to 14, 2026. Sources: Federal Reserve (FOMC statement and projections, September 16, 2026; H.15), U.S. Bureau of Labor Statistics (CPI, September 2026), CD Valet (September 2026 CD rate trends). 

PTMA Funding – Your Partner in Institutional Deposit and Funding Strategy 

When should your community bank partner with PTMA Funding? 

 

Competition for stable deposits 

Access additional deposit sources to support current or projected liquidity demands as funding costs rise. 

 

You’re exploring new funding sources 

Explore alternatives to FHLB advances, brokered CDs, and rate boards, without disrupting core deposits (quiet funding). 

 

You’re enhancing your funding strategy 

Strengthen both primary and contingency funding options to improve stability and adaptability in changing economic conditions. 

 

Ready to Diversify Your Deposits with Confidence? 

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Disclaimer 

PTMA Funding is a service of PMA Financial Network, LLC and PMA Securities, LLC. DTC eligible CD execution is provided by PMA Securities, which is a member of FINRA and SIPC. For issuer use only. Not to be distributed to members of the public. Public Trust Advisors, LLC, PMA Financial Network, LLC, PMA Securities, LLC and PMA Asset Management, LLC (collectively “PTMA”) are under common ownership. Public Trust Advisors, LLC and PMA Asset Management, LLC, are both SEC registered investment advisers. PMA Securities is a broker-dealer and municipal advisor registered with the SEC and MSRB and is a member of FINRA and SIPC. Registration with the SEC does not imply a certain level of skill or training. Marketing, securities, institutional brokerage services and municipal advisory services are offered through PMA Securities, LLC. All other products are provided by PMA Financial Network, LLC. 

 

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