GREENSBORO, N.C.-Credit unions will need to hone their investment strategies in the second half of 2012.
"It's all about cash flows," said Fred Eisel, SVP/chief investment officer of First Carolina Corporate CU. "Given the low-rate environment that is going to contiue through 2012 and even into 2013, credit unions will need to manage their investments so that when rates eventually do pick up, they're ready."
And once those rates finally start to climb, that's when consumer interest is loans will begin to pick up, too.
"Given the economy, there will no change in interest rates, and that's going to make it difficult to make money on loan accounts, plus there's still not much appetite for loans," he offered. "Consumers are deleveraging and paying down debt and saving money. Basically, what we've seen the last two years is going to continue."
But even though the second half will look much the same as the last couple of years, Eisel, who is also a member of the Credit Union Economics Group, urged credit unions to start preparing now for the day rates do begin to climb.
"The inclination is to reach out longer on the yield curve, and that's fine if you have a plan, and you've laddered out so that you are ready when rates and loans pick up," he advised. "NCUA is so focused on interest rate risk and credit unions have been lulled into a low-rate environment for such a long time that some won't be ready when it starts to turn."
A part of the Protective Securities brokerage at First Carolina, Eisel said credit unions "by nature" like callables and step-ups. "We are encouraging credit unions to look at short-term callables, two to five years," he said. "A lot of credit unions aren't comfortable with MBS, but we're encouraging them to look at 10-year and even 15-year MBS and ladder in some agency bullets. There's a little more yield in the 10-year MBS, and it brings a steady monthly cash flow. But it's very conservative."
