Rates approach record lows. What can be done?
Interest rates are hitting new lows, both here and abroad. The German 2-year note is currently offered at a negative yield, meaning that you have to pay a premium price to have them keep your money. The U.S. 2-year note is running at 0.23%. The ECB recently dropped their overnight rate to 0.00%. Our Fed continues to pay 0.25% on excess reserves but in his recent testimony before Congress Chairman Bernanke hinted that one of the tools the FOMC could employ to stimulate the economy would be dropping that rate over here as well. Lower rates are going to be with us for a while.
Credit unions are finding it increasingly difficult to find investments that provide sufficient yield to cover their members share rates let alone find excess cash to pay the bills. Credit unions have to spend more time scouring the markets to find investments that provide some yield but that also fit their investment policy guidelines.
How CU-IS LLC can help
CU-IS LLC is trying to assist in this effort by expanding its Daily Offering sheet. This article will discuss the changes and how they will benefit you.
CU-IS LLC is the CUSO jointly-owned by some 10 Corporate Credit Unions. These Corporates have chosen this collective solution to assist credit unions with their investment needs in marketable securities. With the general scaling back of Corporate certificates of deposits, credit unions have turned to marketable securities to fill their investment portfolios. By pooling their resources Corporates can offer low cost access to the capital markets. SunCorp is an investment partner in CU-IS LLC and offers marketable securities opportunities through that broker-dealer channel.
The current offering sheet
CU-IS LLC has historically provided a daily listing of investments that are the kinds of investments used by most credit unions. These opportunities are prepared by CU-IS LLC personnel. Every morning the CU-IS LLC trading staff scans street inventories to find the most valuable offers in a particular class. These marketable securities are grouped into secondary and new issue opportunities. The secondary offerings are grouped into callable agencies, bullet agencies, MBS collateral and CMOs. The new issues worksheet shows those new issues that are offered that morning as well as bonds that are still in syndicate from previous days.
The expanded CU-IS LLC offering sheet
The new offering sheet will be available before the end of August. You will immediately see that CU-IS LLC has significantly expanded the number of offerings in each asset class. To accommodate this expanded offering list an additional worksheet has been added to the daily offering report. There will be a total of three pages: expanded secondary callable and bullet agencies, an expanded new issue listing, and a separate (and new page) for MBS and CMO paper.
The format of this new offering document will be similar to the current report but there will be a much larger list of securities from which to choose in all product categories.
CU-IS LLC personnel will continue to post actual offerings that are available in the street. This is not a theoretical list of what might be offered for sale but a snapshot of what is currently available. Certainly markets move and bonds trade, so one canít always be sure that a selected security will be available when you are ready to buy it, but CU-IS LLC makes every effort to show you securities that are for sale and at a market price where they can be purchased.
The new MBS and CMO offerings
The selection of opportunities in the area of Mortgage-Backed Securities and CMOs has been dramatically enhanced by the use of a new product that has been adopted by CU-IS LLC. This software package collects mortgage inventories from over 70 broker-dealers every day. It is the one of the most comprehensive sources available to take a look at what bonds are available for purchase on a given day.
CU-IS LLC traders decide on parameters for MBS and CMO investments that are typical of what credit unions might purchase. These parameters are entered into the sorting program and lists are prepared that consist of securities that fit these parameters. The CU-IS LLC trading staff then selects the most attractive of these opportunities to post on that dayís MBS and CMO offering sheet.
Credit unions are encouraged to review this list of mortgage offerings as part of their daily investment search.
Reverse inquiry opportunity
It will not always be the case that the CU-IS LLC search process will produce securities that you might be looking for. Credit unions are also encouraged to contact their sales coverage at CU-IS LLC and ask them to do a bond search specifically tailored to that credit unionís needs. This process takes very little time and should provide a much more specifically-tailored investment choice.
Conclusion Ė a better tool for investments
CU-IS LLC and SunCorp are very excited about this expanded offering sheet. Credit Unions should know that we are very committed to assisting them as they navigate these difficult times. We hope that this expanded offering sheet will be an important tool in that process.
SunCorp has five registered representatives:
- Jeff Smith (303) 358-7823
- Cindy Maxwell (801) 703-0226
- Steve Browning (303) 870-8436
- Leah Schlangen (720) 556-8547
- Charlie Watts (720) 540-4634
Please contact any of them for more information on CU Investment Solutions, LLC.