AUSTIN, Texas — With credit union loans flat and deposits up, how to effectively manage a growing investment portfolio is the issue Amherst Securities Group expects CUs to wrestle with for at least another year.
According to Steve Coale, managing director at Amherst, the economy won't turn around for another 13 to 18 months to reverse the trend.
"We are very busy here. Monthly credit union cash flows are up and that all leads to increased investment portfolio size. The investment portfolios of the clients we work with, on average, are up 20% to 30%, some higher than that."
All economies ultimately turn around, reminded Coale, who said the "dilemma" facing the U.S. comes from the housing sector.
"That's a big driver of recovery because so many jobs are tied to it. But for housing to come back, the ability for people to refinance at lower, longer-term mortgage rates is essential. However, the backup in the Treasury yield will dampen that," he said at press time. "Look at where we were 60 days ago and where we are today. Effectively, with this backup in the ten-year Treasury, refinancing is falling off. The high in the refinance index in this most recent cycle came on Jan. 9, at 7,414. That was up from Oct. 31, when it was 1,075. Now we are back down to 2,953 — dropping like a rock, probably back to October levels. I think that's where we are headed."
As Coale has been emphasizing throughout the economic downturn, credit unions must avoid the temptation to invest in longer-term fixed rate instruments to get a little higher yield.
"As I have said, that can become disastrous for ALM planning if rates start to go up 12 to 18 months from now. Put another way, we are at an all-time low in rates and they can only go higher. And that's how credit unions can get themselves in trouble if they don't pay attention."
