Opinions Divided On Treasuries: What About Income Streams?

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ARLINGTON, Va.-With the value of U.S. Treasuries heading higher and their yields lower, experts are split on whether corporates with investments in these securities should be concerned about their income streams.

NAFCU chief economist Tun Wai pointed out that 18 corporates have investments in government obligations. "This means they won't make as much money. It's a question of what are you going to earn, and don't forget the corporates are in the early stages of their plan executions. They are trying to grapple with what is profitable and what is not, and do I have enough income or capital to continue."

Wai acknowledged that the dip in Treasury yields is not a major concern for the corporates with investments in government obligations, but it will make them pause and think about what is occurring in the markets and review their plans. "It is just something else for them to consider," said Wai.

Stuart Perlitsh, CEO of the $300-million Glendale Area Schools FCU in Glendale, Calif., pointed out that some corporates are relying on investments more than others and that the movement of Treasury yields could affect their plans. "Some of these corporate have really robust business plan projections to make all this investment income to subsidize their operating expenses."

Thomas Bonds, CEO of Corporate America CU in Birmingham, Ill., said his CU has no Treasury investments and he suspects this is not an issue for the corporate system. "Also, the spreads are widening a little in agency securities and is mitigating some of the positive price moving in Treasuries."

John Fiore, chair of the advisory council and charter advisory group that are creating the new corporate (Alloya) out of Members United Bridge Corporate CU, concurred, saying that the model for many of the new corporates is far less dependent on spread than before the system collapsed. "When we were a $10- to $12-billion organization, we were making money on the spread. Going forward the corporates will be much smaller, we will not have a lot of money to invest."

Fiore added, however, that if rates stay low for a long while-over five years-that Alloya would have to review its business model and probably cut expenses. Fiore is also CEO of the $760-million Motorola Employees CU in Schaumberg, Ill.

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