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By Trust for Credit Unions Mutual Funds
In a September 17th, 2014 monetary policy statement, the Federal Open Market Committee noted improvement in both the labor market and broader economy. “In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions since the inception of the current asset purchase program, the Committee decided to make a further measured reduction in the pace of its asset purchases.”
Beginning in October, the asset purchases known as Quantitative Easing or QE will be scaled back with the Committee adding to its combined holdings of agency mortgage-backed securities and longer-term Treasury securities at a combined rate of $15 billion per month vs. their previous rate of $25 billion per month.
“If incoming information broadly supports the Committee's expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will end its current program of asset purchases at its next meeting.”
With the Fed tapering its buying of assets, it will be interesting to see who comes in to support the market and at what levels. Will yields on securities return to a more “normal” spread?
The overall industry’s investment portfolio still comprises 34% of total credit union assets and remains a significant part of a credit unions’ balance sheet. Credit unions will need to remain vigilant when managing the investment portfolio amidst a back drop of new regulations and continued lower short term rates.
As of June 30th, 2014, credit unions held over $379 billion in investments. As the chart below demonstrates, total investments decreased $16 billion from the previous quarter’s total of $395 billion. The total assets of credit unions increased by $ 7 billion to an all-time high of $1.118 trillion. This growth results in a slight increase in the loan-to-asset ratio from 59% to 61%. The decrease in investments follows the traditional seasonal pattern of increased lending in the 2nd quarter.
Federal Agency Securities (Agency Debt, Mortgage-Backed Securities, and Collateralized Mortgage Obligations) remain the investment of choice, representing just over 50% of total credit union investments. There was a large decrease in Cash at Other Financial Institutions (FED balances) from $71 billion to $58 billion and a decrease in Cash at Corporate CU from $25 billion to $19 billion. The total decrease of $19 billion in Cash helped fund the growth of $23 billion in new loans during the 2nd quarter.
The average investment maturity for all U.S. credit unions in the 2nd quarter of 2014 remained relatively unchanged versus the 1st quarter of this year. It is important to note that the total investments in the 5 to 10 Year and Over 10 Years buckets shrank by a total of $4.5 billion. This shortening of portfolio maturities is most likely caused by a combination of securities rolling down the curve and shorter average lives for certain types of CMOs. Securities with maturities Less than 1 Year remained at the 40% level due to credit unions’ liquidity needs and the funding of new loans.
Interested in more information about the overall industry’s average yield on investments and investment growth rates? Download your complimentary copy of the full Q2 Investment Trends Review from www.trustcu.comtoday or contact us at TCUGroup@callahan.comto learn more about the customized investment reviews we can provide for your credit union.
TRUST helps credit unions succeed in serving their members by providing a professionally managed family of mutual funds --- exclusive to credit unions --- as well as the information and analysis they need to support investment decisions. Created by some of the leading credit unions with oversight by a board of trustees, TRUST’s mutual fund options allow credit unions to meet their short duration needs, are professionally managed, and are based on the cooperative values of credit unions.
Visit www.trustcu.comor call us at 800-237-5678 to learn more.
The Trust for Credit Unions (TCU) is a family of institutional mutual funds offered exclusively to credit unions. Callahan Financial Services is a wholly-owned subsidiary of Callahan & Associate and is the distributor of the TCU mutual funds. Goldman Sachs Asset Management is the advisor of the TCU mutual funds. To obtain a prospectus which contains detailed fund information including investment policies, risk considerations, charges and expenses, call Callahan Financial Services, Inc. at 800-CFS-5678. Please read the prospectus carefully before investing or sending money. Units of the Trust portfolios are not endorsed by, insured by, obligations of, or otherwise supported by the U.S. Government, the NCUSIF, the NCUA or any other governmental agency. An investment in the portfolios involves risk including possible loss of principal.
This sponsored content article is provided to the credit union community for shared insights and knowledge from a recognized solutions provider in the industry. Please note that the views and opinions offered here do not reflect those of Callahan & Associates, and Callahan does not endorse vendors or the solutions they offer.
If you are interested in contributing an article on CreditUnions.com, please contact our Callahan Media team at firstname.lastname@example.org or 1-800-446-7453.
September 22, 2014
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