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Presentation Transcript
Sarina Freedland

Senior Investment Officer

Registered Representative for CU Investment Solutions LLC

2014…Where do we go from here?

  • Why did credit union investing change?
  • Is it changed forever?
  • What’s your strategic activity comfort level?
    • Active or passive
loan to share 2008 to 2014
Loan to share 2008 to 2014




Source: Callahan & Associates, Peer-to-Peer Analytics

another snapshot rate environment
Another snapshot – rate environment

Historic Yield Curve Trend

where do we go from here
Where do we go from here?

Interest rate projection

Bloomberg Economist Consensus 9/22/14

Lending and Deposit Projection

investment sector issues cd depth and rates
Investment Sector issues: CD depth and rates
  • Residual effect of financial crisis/recession
  • Diminishing supply of CDs
  • Re-pricing in a rising rate environment
investment sector issues gses
Investment Sector issues: GSEs
  • Uncertain future
  • Re-vamped government entity or private company
  • Winding down balance sheets – changing amount of new issuance
investment sector issues mortgage origination
Investment Sector issues: Mortgage origination

Mortgage origination vs 30-year rate

raise your hand
Raise your hand
  • What Portfolio Management Strategy are you using?
    • Laddered Portfolio
    • Target Average Life or Duration
    • Barbell Strategy
    • Total Return Strategy
    • Other or Don’t Know
strategy comfort zone
Strategy Comfort Zone

Are you

  • Passive - a walk around the park
    • Laddering
    • Duration targeted
    • Barbell
  • Active - triathlon winner

–Total Return

laddering the most basic
Laddering – the most basic
  • Tried and true strategy
  • Liquidity drives decisions
  • Maturities = rungs of the ladder
    • CDs
    • Agency debt, bullets & callables
    • Monthly, quarterly, annually
target duration average life
Target Duration (Average Life)

Determining the average life or duration

  • Match to balance sheet liabilities
  • Point on yield curve
  • Randomly chosen target (not ideal)
consider the yield curve
Consider the yield curve

Historic Yield Curve Trend

mbs more flexibility
MBS – more flexibility
  • Mortgage backed securities (MBS)
    • More cash flow
    • More yield
    • More uncertainty
  • Story bonds
    • Underlying loans, new or old
    • Geographic location
    • Credit score
  • In place of originating loans?



up 10%

barbell strategy
Barbell Strategy


Longer term CDs, bullets, callables, MBS/CMOs, SBAs, Munis

Cash Flow

Cash, shorter term CDs, bullets, callables, floaters, or short ave. life MBS/CMOs

barbell strategy1
Barbell Strategy

Historic Yield Curve Trend

cash flow patterns of different securities
Cash flow patterns of different securities



Fixed maturities enhance spread under declining rates but could be adverse in rising rates.

Callables redeem early in declining rates and can be adverse in rising rates.

Amortizing structures best in rising rates providing needed cash flow for higher reinvestment but can be unpredictable.

Declining rates could result in faster cash flows creating lower investment yields.


U.S. Treasuries

Certificates of Deposit

Agency Bullets

Called or matured?

Agency Callables

Agency Step ups

Callable CDs


Agency MBSs

Amortizing Structures

total rate of return strategy
Total Rate of Return strategy
  • ACTIVE management approach
    • Goal of beating a benchmark
    • Must have an horizon time period
    • Increased RISK with hope of increased REWARD
    • Continuous monitoring & adjusting
    • Be willing to sell and take loss
trr details
TRR - details
  • Calculation of Return
    • Interest Earned + Price Movement =TRR over a specific horizon
  • Considerations
    • More robust reporting needed
    • Willingness to sell at a loss
    • More volatile than passive strategies
    • Use products with little on no negative convexity
what is right for you
What is right for you?
  • No one right way
  • Look at your credit union’s appetite for risk and reward
  • Consider cash flow, ALM, balance sheet, ability to pay attention DAILY
2014…Where do we go from here?

Questions? Sarina FreedlandSenior Investment OfficerRegistered Representative for CU Investment Solutions