Southwest Corporate Federal Credit Union is making available to credit unions a white paper that examines how market spreads impact relative asset value. A PDF copy is available for download on Southwest Corporate's Web site, www.swcorp.org.
Steven Houle, senior adviser in Southwest Corp's advisory services group, authored the piece. It explores factors that impact asset spreads, evaluates current levels for core and non-core assets and concludes with an overall strategic recommendation.
"Over the last year, the shape of the Treasury curve has gone from relatively flat to positively sloping as short-term rates have declined significantly more than longer-term rates," Houle said in the paper.
He cited a period from June 2008 to June 2009 when the three-month, two-year and 10-year Treasuries decreased 155, 168 and 53 basis points, respectively.
"With spreads on loans and investments changing over time, it's crucial for credit unions to proactively monitor their asset portfolio profiles including pricing, yields and durations. This also includes assessing relative value between the various asset classes," he said.
A combination of vehicle loans, fixed-term investments and mortgage-backed securities would provide the ideal cash flow diversification to obtain an effective overall portfolio return, Houle added.
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