Posted by Mr. Zane Wilson, VP Investment Services, Catalyst Corporate FCU on 4/25/2019

A closely-monitored measure of the Treasury yield curve briefly inverted a few weeks ago. The yield on the 10-year Treasury note fell below the yield on the 3-month T-bill (see chart below), unsettling equity investors worried about a potential recession.

The inversion of the 3-month to 10-year Treasury yield spread came about as bond yields around the world fell. Disappointing economic indicators from the European Union confirmed fears of slowing growth in a region that was already reeling from a trade slowdown and Brexit uncertainty. Stock investors flocked to the safe haven of Treasury securities, driving yields down. Around the same time, the FOMC cut its interest rate-hike projections from two to none, and Fed Chairman Jerome Powell cited global economic slowdown and tame inflation as reasons for caution.

Yield curve basics

The Treasury yield curve is a line that plots Treasury yields across maturities ranging from three months to 30 years. Typically, the Treasury yield curve is upward-sloping, providing higher yields for investors who hold longer-term securities that are subject to inflation risk and other uncertainties. An inverted Treasury yield curve can be a concern for a variety of reasons: investors may be worried about future economic growth, so long-term Treasury securities are favored, or overly tight monetary policy has short-term rates elevated, causing a slowdown in the economy.

A general inversion of the Treasury yield curve can be seen as a reliable warning of a potential recession within a year or two. Inversions have preceded every U.S. recession going back to 1955, with only one false positive. While inversions of other portions of the curve have also served as recession indicators, many economists believe that the 3-month to 10-year Treasury spread is the most reliable. Inversions of the 3-month to10-year spread have preceded each of the past seven recessions, including the 2007-2009 contraction, and have offered only two false positives – an inversion in late 1966 and a very flat Treasury yield curve in late 1998.

Should we be worried?

A recession is not a certainty. Some economists have argued that the aftermath of the Federal Reserve’s quantitative easing measures, during which global central banks bought up government bonds, may have robbed yield curve inversions of their reliability as a predictor. Since so many Treasury securities are held by central banks, the Treasury yields can no longer be seen as market-driven. The Fed may have created an artificial yield curve that they cannot wind down for years.

The yield curve has been flattening for some time, and it’s possible the 3-year to 10-year Treasury yields would need to be inverted for a sustained period to signal a recession, instead of inverting for just a few days.

We cannot ignore a rising recession risk, but for now, it has largely been a story of global growth concerns. If the global economy continues to deteriorate, however, the U.S. will feel the negative effects. On the positive side, if the Administration can resolve trade agreement/tariff issues, we should see a bump in equities, Treasury yields and economic growth. 

Categories: Business Partners, Financial & Auditing, Sales & Service
Posted by Kathy Gensler, Senior Financial Solutions Consultant, Catalyst Strategic Solutions on 4/2/2019

With total loans/shares on the rise and interest rates uncertain, liquidity management can be challenging.

According to the NCUA, an effective liquidity and interest rate risk management program is critical to a credit union’s safety and soundness. Projected economic fluctuations in 2019 make this an area of increased emphasis. When rates rise, it puts pressure on credit unions to raise deposit rates to maintain deposit account volume.

Looking at credit union year-over-year statistics, total loans outstanding increased $86.3 billion, or 9.0 percent, by year-end 2018 to $1.0 trillion. Loan balances rose in every major category. Shares and deposits rose by $60.3 billion, or 5.2 percent, to $1.22 trillion. The loan-to-share ratio stood at 85.6 percent, up from 82.6 percent at year-endSeesaw 2017, above the 10-year average of 75.35 percent. The trends reflect a steady decline in loan growth since 2015, as well as a decline in share growth during that same period, resulting in a steady increase in total loans/shares.

Squaring away available funding sources and stress testing your credit union's liquidity are two essential components of effective liquidity risk management.

Funding Sources

Consider the following guidelines when selecting a partner to help meet your credit union’s funding needs:

  • Loan Participations/Sales – Credit unions can free up liquidity so they can continue to make loans to their members, while still receiving monthly servicing income on the loans that have been participated away. Be sure to look for a program that provides a low cost structure, easy due diligence process and simple remittance process.
  • Brokered Deposits – Consider a solution that enables your institution to raise deposits and generate liquidity quickly and easily. Be sure you are fully informed regarding related subscription, broker and transaction fees.
  • Investment Sales – Partner with an investment team that can show you how selling securities from your credit union's portfolio compares to other liquidity options. Ensure they are a reliable source for highly competitive bids.
  • Borrowings – Evaluate the scope of services provided by the liquidity source – does it supply liquidity for settlement needs, as a liquidity backstop, or for longer term funding? Are collateral pledges available for a variety of asset types?

Stress Testing

A liquidity stress test and forecast analysis can help your credit union with its liquidity strategy. This dynamic projection identifies liquidity shortfalls across various stress scenarios. The analysis projects net cash flows based upon multiple factors, such as growth, unfunded commitments, deposit runoff, and changes in interest rates. Sometimes stress testing is offered in conjunction with an online “what if” tool that generates instant results on your credit union’s liquidity position for a quick answer during Board or ALCO meetings, for example.

Liquidity management can be challenging, but with the proper partners and prudent planning and analyses, such as Catalyst Corporate's loan participations and brokerage services and Catalyst Stategic Solutions' ALM services,  you can be prepared for that challenge.

Categories: Business Partners, Compliance, Financial & Auditing
Posted by Alison Barksdale, AVP of Mktg, CU Members Mortgage on 3/7/2019

As a credit union professional, you take your job seriously. You know that it’s not enough to have great member service skills; you also need to be a student of the business. You read blog posts and the latest letters and circulars when guidelines are updated. You attend training courses and keep your licenses current, and when you’re scanning through social media you read anything about the industry that catches your eye. As a professional, you know it’s important to do all of those things and you’re proud you do.

But, it’s not enough.

Reading up on programs and keeping your license current is vital, but it takes more than that to become an irreplaceable professional succeeding in today’s market. You need to get out and see what’s happening. You need to meet with others who are doing what you’re doing and doing it well. You need to attend events that will give you fresh ideas and help you grow. 

If you want to continue to grow as a professional and reach your goals, you need to make a commitment to professional development. Here are three keys to maximize your development:

  1. Content is King
    When you attend a conference or workshop, you want to check out the agenda. Be sure you’re getting top notch content that will give you some action items to take back to the credit union the next day. Sometimes these sessions become all fluff and no real depth, they may make you feel good, but they don’t help you in your day-to-day routine.  Read through the descriptions and see what to expect before you register. Make sure it’s not a session you’ve already attended, but don’t shy away from speakers you’ve heard before. Great speakers will get hired repeatedly and often write new content to stay in the circuit of presenting.  They are experts after all. Don’t forget to search for speakers you don’t know too. You’ll want a fresh perspective as well.

  2. Take Time to Talk Shop
    Networking is also a necessity at these events and one of the main reasons you must physically attend a workshop or conference. This gives you the chance to sit and talk with peers to learn what’s working and what’s not. You can find out what challenges others are facing and compare notes on how to handle them. You can learn about helpful tools or vendors and even find tips on other events that are worth attending.

  3. Application is Essential
    When it comes to any type of workshop, conference, webinar, class or any other type of professional development, it means nothing if you don’t apply it and let it impact your daily life and processes. A good educational session will spur ideas, give you some applicable actions items and help you make changes to your day-to-day. It will help you grow and achieve or even surpass your goals. Whatever it is you’ve learned at your event, take it back to the credit union and apply it. That’s where you are going to get the most out of your attendance.

If you want to surpass goals and achieve a new level of personal growth, you must make the commitment to attending outside events in your field on a regular basis. It’s not just one event a year; it’s multiple events a year. It might be trying out something new or scheduling something out of the normal calendar too. Attending the same event year after year might not be the best way to develop, although it’s a great start. When it comes to development I challenge you to find new ways to learn and develop your teams. What do you have next to take your professional career, better yet your credit union, to the next level?

Categories: Business Partners, Education & Training
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