Fixed-Income Strategies for a Low-Yield Environment

By Tripp Weller, Financial Advisor, Morgan Stanley

Since the credit crisis of 2008, the investment landscape for credit unions has changed dramatically, with interest rates reaching levels not seen since the late 1940s. As a result, investment portfolio yields have fallen dramatically.

According to Callahan and Associates, the average investment portfolio yield for all peer groups nationally was 4.67 percent in 2007. The average yield had already fallen to 1.72 percent as of June 2011 and is anticipated to fall further—partly due to the maturing of higher coupon securities. This has forced credit unions to consider new strategies in order to achieve better yields without sacrificing credit quality.

To add insult to injury, the proportion of investments as a percentage of total assets has also been on the rise. As of June 2011, the national average loan-to-share ratio fell to 69.4 percent, with an increase in investment portfolios by 12.9 percent resulting in an average of 35.3 percent of assets in investments.

Over the last three years, according to the Callahan and Associates 2012 Credit Union Directory and supplemental information, investments as a percentage of assets have grown by an estimated average of 2.76 percent per year, bearing in mind that mortgage-backed securities (MBS) return principal over the life of the investment and have estimated maturities and yield that can change. These factors on average have compounded the problem of a low-rate environment, by decreased net interest margins and lower net income.

However, in every kind of interest-rate market, there are fixed-income strategies that assist in increasing yield while possibly minimizing interest rate risk. In our seminar, “Fixed-Income Strategies for a Low-Yield Environment,” we will review several strategies that are helping credit unions enhance their income while attempting to manage interest rate risk.

In addition to fixed-income strategies, we review several types of fixed-income investments, including callable, step up, fixed to float, floating rate, and MBS. As part of our review, we will cover the innate advantages and disadvantages of each security along with the recommended due diligence for each.

Lastly, we will provide an in-depth review of the permissible investment universe for both federally chartered and Washington and Oregon state-chartered credit unions.


Questions? Contact Training Programs Coordinator Yuri Jung: 206.340.4817,

Posted in Around the NW.