C. Myblog

Recent Rise in Rates…

January 7, 2011

Many thought that the recent Fed actions would drive rates lower, or at least help keep them at their extraordinarily low levels.  However, in the roughly seven weeks since the Fed announced the second round of easing, the 10-year Treasury rate has actually increased about 100 bps, from 2.5% to about 3.5%.  Thirty-year fixed mortgage rates have increased a similar amount over that period of time.  Shorter and medium-term rates have increased as well.

The increase in rates may impact recently completed 2011 budgets, with some positive effects, some negative.  If your credit union plans to originate and sell mortgages, you may consider testing a possible negative impact on volume and on associated non-interest income, if you have not done so already.  On the bright side, if your credit union is planning to book and hold mortgages, the increase in rates could make that decision look more attractive.

With the rise in investment yields across most points on the yield curve, credit unions might be able to top their projected investment income for 2011.  Others may see the rise in rates as an opportunity to shorten the planned duration of new investments while still hitting budgeted investment income targets.  Of course, long-term rates could drop in the next few weeks.  However, if rates stay where they are or move higher, credit unions should be discussing the likely impacts on their balance sheet management strategies heading into 2011.

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