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).

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