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Investment strategies: Reviewing 2019, anticipating 2020

By Bob Post, Chief Investment Officer

As we anticipate the fresh start of a brand-new year, let’s pause for a moment and reflect a little on the past 12 months. It’s certainly been interesting.

Reflecting on the markets, interest rates, and economic events

In a somewhat volatile year, the Federal Open Market Committee (FOMC) cut interest rates three times in 2019 to bring the Fed Funds target range to 1.50% - 1.75%. Despite this volatility, the equity markets achieved record highs and unemployment hit all-time lows. Unfortunately, the U.S. Treasury curve wasn’t immune; the 10-year U.S. Treasury began trading over 3.00% at the beginning of the year, dropped down in the low 1.40%s in the third quarter, and is currently trading just under 2.00%. The yield curve has steepened in the last few months, primarily due to solid economic growth and the pending execution of a part 1 trade agreement with China. In addition, looking back to the October FOMC meeting, normalcy returned to the overnight markets when the Federal Reserve stepped in with plans to buy approximately $60 billion per month in short-term U.S. Treasury securities (T-bills) to keep the overnight cash and securities borrowing and lending markets (repo) operating efficiently. This monthly action is expected to continue into the first quarter of 2020.

In the credit union industry, the pace of loan growth slowed relative to 2018, while savings growth accelerated. CUNA predicts loan growth in 2020 of about 5.5% with 8.0% savings growth, and what we have seen internally seems to support this trend as demand for investments and cash balances have trended upward.

Looking ahead to the New Year

As we begin 2020, the markets will be facing many issues, important events, and of course, economic data. The looming impeachment of the president, headlines of turmoil in Britain as they exit the European Union, execution and enforcement of the initial trade agreement, and important economic data on the strength of the consumer, who drove economic growth in 2019, will all continue to have an impact.

Consensus estimates from most economists and FOMC participants show no changes to the target Fed Funds rate through 2020 with most commentary expecting the FOMC to avoid any changes as we go into an election cycle. If you’d like to dig into this economic data in more detail, I hope you’ll view our most recent quarterly economic update webinar with both myself and Mike Schenk, Deputy Chief Advocacy Officer for Policy Analysis and Chief Economist for CUNA.

Though rates may (and will) go up and down, and the market regularly shifts back and forth from stable to volatile, investment professionals can still rely on several solid strategies. For tips on positioning your credit union’s portfolio, check out this article.

Serving our members with investment and funding solutions

It continues to be a pleasure to serve our members and credit unions nationwide with premier investment and funding solutions. We are proud to have helped so many of you with your strategic cash management plans, and we are always striving to earn your ongoing business through improvements and enhancements. Here are a just a few highlights from 2019:

  • We helped our members invest more than $1 billion in SimpliCD and securities to achieve good returns.
  • We lowered our demand-loan rates.
  • We waived pre-payment penalties on various term-loan specials.
  • We continued to enhance our digital cash-management experience. Launched a little over a year ago, the Investment & Funding Dashboard allows members to easily access their account balances and view a consolidated summary of their Corporate One balances, including overnight and term deposits, SimpliCD and Safekeeping holdings, and all funding balances. To learn about the most recent enhancements, including how to access the Dashboard, view this article.

On behalf of our Investment and Funding teams, I would like to thank you for giving us the opportunity to serve your credit union in 2019. Wishing everyone much success in 2020!