Emily Hollis, ALM expert, explains asset/liability management (ALM) risk measurement tables and where you can find them.

Emily answers the question, Our credit union performs both NEV and NII analyses. Which analysis does your firm focus on, and what are you typically looking for?

The NCUA's recent approval of exchangeable CMOs opens up another investment vehicle for credit unions. Depending upon your investment portfolio and your outlook for interest rates these instruments may have a place in your portfolio.

Question:
In one of your recent columns, you explained how Fed Funds contracts may be used as a predictor of the market’s expectations for interest rate changes. You indicated that Fed Funds contracts go out 10 months. Aren’t there contracts that go out greater time periods, enabling investors to gauge long-term market sentiment?

The best way to obtain consensus is to read the federal funds futures contracts. These contracts trade out 10 months – one contract for each month. The price quoted is 100 minus ‘effective fed funds’, which represents the market’s expectations of the overnight fed funds rate. Using these contracts, one can place a probability of when and how much the Federal Reserve’s Federal Open Market Committee (FOMC) will move rates