Search
 

Fed 'Tapering' Preview of Bond Bubble Burst to Come

This Opinion piece warns to get ready to avoid the damage many credit unions would sustain should bond values swoon.

By Peter F. Duffy | Updated on September 27, 2013

In May the Federal Reserve Board discussed reducing its purchases of Treasury and mortgage bonds as signs pointed to an improving economy. The “tapering” comment, as the press reported it, led to a spike in Treasury rates and decline in bond market values. The backup in rates provided a sneak preview of the potential damage to credit union balance sheets, underscoring the importance of preparing for the inevitable collapse of the bond bubble. 

The yield on the 5-year U.S. Treasury doubled to 1.49% in the quarter ending June 30. According to Sandler O’Neill research done in collaboration with R.P. Financial utilizing Call Report data from SNL, the rate increase led to significant market value decline in the available for sale (AFS) investment portfolio for many credit unions in the group with assets greater than $250 million (Group).

Complete your profile to continue reading and get FREE access to CUTimes.com, part of your ALM digital membership.

Your access to unlimited CUTimes.com content isn’t changing.
Once you are an ALM digital member, you’ll receive:

  • Critical CUTimes.com information including comprehensive product and service provider listings via the Marketplace Directory, CU Careers, resources from industry leaders, webcasts, and breaking news, analysis and more with our informative Newsletters.
  • Exclusive discounts on ALM and CU Times events.
  • Access to other award-winning ALM websites including Law.com and GlobeSt.com.

Already have an account?

 

Recommended Stories

The Appraisal Bias Conundrum

The Appraisal Bias Conundrum

Henry C. Meier, Esq. |

Credit unions should consider any additional steps to take to ensure that your appraiser will not be accused of bias.

Credit Union Times

Join Credit Union Times

Don’t miss crucial strategic and tactical information necessary to run your institution and better serve your members. Join Credit Union Times now!

  • Free unlimited access to Credit Union Times' trusted and independent team of experts for extensive industry news, conference coverage, people features, statistical analysis, and regulation and technology updates.
  • Exclusive discounts on ALM and Credit Union Times events.
  • Access to other award-winning ALM websites including TreasuryandRisk.com and Law.com.

Already have an account? Sign In Now
Join Credit Union Times

Copyright © 2023 ALM Global, LLC. All Rights Reserved.