NCUA’s Student-Loan Backed Corporate Bonds Prove Popular

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WALL STREET – NCUA quickly sold $1.16 billion Friday of its NCUA Guaranteed Notes supported by student loan receivables owned by the five failed corporate credit unions, representing a departure from the five previous offerings that were backed by residential or commercial mortgages.

The bonds proved popular with investors looking for a healthy yield while guaranteed by the federal government, sources told the Credit Union Journal.

The bonds, backed by both federally guaranteed and private-issued student loans, were priced to yield 35 basis points, or 0.35 percentage points, over the one-month London interbank offered rate, a benchmark rate that banks charge one another.

The week before, NCUA sold a $3.5 billion bond issue backed by residential mortgage securities held by the five corporate failures, U.S. Central FCU, WesCorp FCU, Members United Corporate FCU, Southwest Corporate FCU and Constitution Corporate FCU. NCUA has sold more than $16 billion worth of the guaranteed notes over the past two months and plans to seel as much as $35 billion worth.

The bonds are comprised of the cash flows, the principal and interest payments, on troubled bonds held by the five corporate failures. The actual bonds themselves will continue to be held in trusts by NCUA until the mature.

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