Investors who purchase U.S. Central Federal Credit Union's medium term notes will earn more than credit unions that invest in U.S. Central's certificates of deposit.
As of yesterday, U.S. Central was paying 1.15% on a two-year certificate. Comparatively, one of U.S. Central's Oct. 14 notes was a $1.5 billion, two-year fixed rate bond that pays a coupon rate of 1.25%, according to Bloomberg market data.
The other two notes include a $2 billion, three-year fixed rate bond that pays 1.90% and a $500 million, two-year floating rate note that pays according to the 3-month Libor rate. The deals are available to investors in increments as small as $1,000, according to Bloomberg, and have settlement dates of Oct. 19.
So why not raise funds by offering a higher rate to credit union members for their deposits?
"If (U.S. Central) offered a higher rate to credit unions, could they invest in capital markets and earn a spread?" asked Charlie Felker, managing director of regulatory affairs for First Empire Securities. "The problem is they can't pay competitive rates; in fact, they're losing money."
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