Volatility was the theme of the second quarter for financial markets. Fixed income markets reacted negatively when the May Consumer Price Index (CPI) jumped 8.6% 30 basis points higher than estimates. On the same day, the University of Michigan consumer sentiment survey, a trusted leading economic indicator, reported American economic sentiment was at its lowest level on record. Almost half of consumers surveyed cited inflation, particularly gas prices, as the reason for their pessimistic outlook.
In recent weeks, some Fed leaders have mentioned slowing down or pausing rate hikes to assess the economic situation and fend off possible recession, but chairman Powell said inflation would have to come down significantly in the coming months for the Fed to return to a more dovish position. For now, the market is unsure about whether to price in an increase of 50 or 75 basis points.
In the credit union industry, total investments fell 9.5%, or $68.6 billion, during the second quarter. Total investments, including cash balances, totaled $655.4 billion as of June 30, 2022.
A quarter-over-quarter cash balance decrease of 26.2%, or $65.9 billion, represented the biggest change in the second quarter. With balances at $185.3 billion as of June 30, cash and equivalents comprised 28.3% of investment portfolios, down 6.4 percentage points from the first quarter. Balances of securities and investments declined a mere 0.6% quarter-over-quarter despite fixed income suffering large losses.
FOR U.S. CREDIT UNIONS | DATA AS OF 06.30.22
Callahan Associates CreditUnions.com
U.S. government and federal agency securities became more dominant in the investment portfolio following the repurposing of cash in the second quarter.
U.S. government and federal agency securities is the largest credit union investment category, and balance declines of only 0.1% meant these securities became more dominant in the second quarter. At midyear, treasuries and agencies comprised 54.6% of the industry portfolio, up 5.1 percentage points from the first quarter. Although equity securities, which include mutual funds, make up only 1.0% of total portfolios, their 21.1% quaterty drop of $1.8 billion was the largest for any non-cash category in both percentage and dollar terms.
Cash in the second quarter is of particular note for credit unions. Cash on hand was the only cash category to increase it grew 2.0% quarter-over-quarter. All other cash holdings declined at least 20.0% on a quarterly basis. Cash at the Fed declined a full 30.3% or $52.2 billion and represented most of the decrease in the overall cash category. Despite the cash exodus, credit unions still have $185.3 billion in cash available after record liquidity growth the past two years.
William Hunt contributed to this post.
For more on portfolio length, derivatives, and more, contact TCU and request your complimentary copy of the full 2Q 2022 Investment Trends Report. Want to compare your institution against the industry or a peer group performance? Contact TCU at 800-237-5678 or TCUgroup@callahan.com
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Trust for Credit Unions (TCU) helps credit unions succeed in serving their members by providing a professionally managed family of mutual funds exclusive to credit unions as well as the information and analysis they need to support investment decisions. Created by some of the leading credit unions with oversight by a board of trustees, TCU’s mutual fund options allow credit unions to meet their short duration needs, are professionally managed, and are based on the cooperative values of credit unions.
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The Trust for Credit Unions (TCU) is a family of institutional mutual funds offered exclusively to credit unions. Callahan Financial Services is a wholly owned subsidiary of Callahan Associates and is the distributor of the TCU mutual funds. ALM First Financial Advisors LLC is the investment advisor of TCU mutual funds. To obtain a prospectus which contains detailed fund information including investment policies, risk considerations, charges, and expenses, call Callahan Financial Services, Inc. at 800-CFS- 5678. Please read the prospectus carefully before investing or sending money. Units of the Trust portfolios are not endorsed by, insured by, obligations of, or otherwise supported by the U.S. Government, the NCUSIF, the NCUA, or any other governmental agency. An investment in the portfolios involves risk including possible loss of principal.