It All Comes Back To Liquidity
"It's all going to come back to if credit unions start feeling the liquidity crunch," suggested Brian Turner, manager of the investment Advisory division of Southwest Corporate. "We are starting to see some tightening of liquidity, and that means credit unions will feel the pressure to raise their deposit rates." Other advice:
* Watch out for what auto makers do with incentives this car-buying season. If they go with some sort of pricing incentive, like the "employee discounts" of last year, credit unions will have another good round of auto lending and will be in need of liquidity, Turner advised. If the auto makers instead go with a financing incentive-think 0% and other low loan rates at the captive finance companies-"credit unions aren't going to be able to play." But he added, "given the losses the auto manufacturers took last year, I can't imagine the incentives can be as aggressive."
* Assume the position. Turner suggested credit unions will want to take a barbell position, also called a straddle position, by ensuring they have downside protection so they are ready if and when rates take the turn downwards.