DALLAS — Amid the market volatility of recent months, credit unions placed significant investments with Southwest Corporate Federal Credit Union during 2007. Last year, credit unions in-vested nearly $1.4 billion in "special certificates" and "reverse inquiries" alone. That figure marked a sharp increase over the $1 billion invested in these particular instruments offered by Southwest Corporate in 2006.
While dollar amounts of investments increased, the actual number of specially structured term certificates offered to credit unions last year dropped slightly to 53, compared to the 63 offered in 2006. However, the drop in special certificate offerings was more than offset by the growing
interest in reverse inquiries, which rose from the 41 provided in 2006 to 62 in 2007, said Cynthia Shi, director of portfolio management for Southwest Corporate.
However, not all the special structured certificates offered in any given week will fit precisely into a credit union's asset/liability needs. That is when the customizable, reverse inquiries become an attractive offer. The 62 reverse inquiries in 2007 accounted for more than $603 million in investments, up from reverse inquiry investments of $353 million in 2006.
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The low-dollar threshold is one of the advantages of working with Southwest Corporate, Shi noted. Most agencies require at least a $25 million. Southwest Corporate keeps its threshold low, and even if a credit union does not have $3 million, it may know of other credit unions with investible funds that can help combine resources.
Finding the right investment option was more challenging in 2007–in large part because of the changing conditions that unfurled during the middle of the year. Because of higher yields early in the year, there was a strong flow of term investment dollars coming into Southwest Corporate for placement during the first half of 2007, Shi said.
That strong first half contributed significantly toward the higher investment totals for 2007. But with the credit markets in flux during the second half of 2007, credit union investment activity generally moved away from long-term investments–many opting for shorter duration instruments, commonly referred to as "bullets." Those instruments have maturity dates often in the three-month to six-month range.
In early 2008, credit union investments still tend to be focused on the short term, the corporate noted. However, Zane Wilson, director of the Investment Services Division of Southwest Corporate Investment Services, said, "credit unions should have been lengthening durations as the economy showed weakness and the FOMC moved to ease monetary policy with lower overnight rates. With expectations of further rates cuts in the coming months, credit unions should not hesitate to invest out one year to one and half year into 2009 where the outlook for the economy and interest rates may be better."
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