Total credit union investments jumped almost 17.3% in the 12 months ended June
30, 2001 to total over $149.7 billion. The primary factor was the dramatic increase
in savings accounts accompanied by the slowdown in consumer lending.
A second change to the investment portfolio was the dramatic increase in liquidity,
that is the proportion of funds held in instruments under one year. Almost 64%
of investments were under one year, about 10% higher than normal. This buildup
was caused by the redemption of callable securities once the Fed began lowering
interest rates in January. As the securities were paid out, longer-term investments
seemed less attractive than the short-term overnight market options.
Cash and cash equivalent investments more than doubled and the corporate system
reaching an all-time high in assets of $59.8 billion at the end of March. The
yield on average investments fell to 5.5% for the first half of 2001, a return
that will surely fall further as the Fed continues to bring down short-term
While it is difficult because of the change in call report categories to precisely
quantify each segment, several trends are clear: corporate credit union and
mutual fund shares expanded and agency and government securities fell as a proportion
of the total.
One other factor in the investment portfolio is the increase in other securities,
especially by state chartered credit unions, which have slightly broader investment
authority than federal charters. These investments, which include highly rated
commercial paper and corporate bonds, can add 30-50 basis points over similar
term agency security yields. Credit unions in Illinois, Michigan and California
are increasing their activity in the corporate debt markets.
Are you near the top in your yield on investments? Find out in Callahan's
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Directory Online. For more information call 800-446-7453