QuantyPhi Quarterly | March 2024
A Message from the President
I am excited to welcome you to the inaugural edition of the QuantyPhi Quarterly, your go-to source for the latest developments and strategies in balance sheet optimization, risk management, asset liability management, and liquidity solutions tailored exclusively for credit unions. As the President of QuantyPhi, I am pleased to introduce our quarterly newsletter where we will share innovative service offerings, industry insights, market updates, and allow you to get to know the members of our team.
We recognize that credit unions face unique challenges when navigating regulatory requirements, managing their balance sheets, and ensuring robust risk mitigation strategies. In each edition of the QuantyPhi Quarterly, we will delve into key topics and outline how we can help you enhance your liquidity risk management program, optimize your investment portfolio, understand regulatory changes, implement effective risk management practices, and tailor your asset liability management to the current economic environment. Our team of seasoned experts brings you invaluable insights and a deep knowledge of credit union regulations and industry trends to help you proactively manage your balance sheets and stay ahead in an ever-evolving financial landscape.
Thank you for your ongoing partnership and we look forward to continuing to expand our service offerings to meet the dynamic challenges you face.
Sincerely,
Adam Stone
President of QuantyPhi
Liquidity Framework Review
Examiners focus on liquidity risk.
Liquidity risk is no longer an afterthought; it is a top concern for credit union leaders and examiners. That's why the NCUA has made liquidity a top priority in their Supervisory Guidelines. Now is the time to re-evaluate your liquidity risk management program and ensure it is robust enough to handle any liquidity threats that come your way.
Our goal is to help you evaluate your liquidity risk management framework and provide recommendations on how to improve your credit union’s liquidity program and pass your exams with ease and confidence. The Liquidity Framework Review will analyze the robustness and effectiveness of your internal liquidity program, liquidity risk management framework, and liquidity measurement and monitoring tools. The review will ensure you understand your current liquidity position and liquidity risks and have constructed a strong liquidity management framework to ensure your management has timely insight into your current position and emerging risks. Complete the form below to contact us and discuss the service. We can also send you a recording of a recent webinar where we explored the service in-depth.
2024 NCUA Supervisory Priorities
Market Update
By: Danny McIntyre, Vice President Investment Services
The elephant in the room when looking at a “higher for longer” rate path is liquidity.
The market spent the greater part of 2023 convinced that we would see the Fed pivot in the first quarter this year and adopt an aggressive easing campaign for the rest of the year. The Fed, for their part, stated that they were happy to see the inflation rate pulling closer to target which could open the door to rate cuts ahead but remained cautious given the strong employment data and resilient consumer spending. They stated that they would follow the data to determine what adjustments should be made to policy. Essentially, the Fed’s statements showed they agreed they would be able to shift from their quantitative tightening program in 2024 and start lowering rates. However, their projected rate path reflected a much slower pace than the markets’ expectations.
In February, the market shifted closer to the Fed’s “higher for longer” rate path expectations. Strong employment data and an unexpected spike in inflation numbers dampened anticipation for the Fed to aggressively push rates lower during the year. Treasury yields shot up about 25 basis points higher in the 1-year maturity, 35 to 40 basis points in the 2-to-7-year sector, and approximately 20 basis points in the long end of the yield curve. Looking at the Fed funds futures market we can see the sentiment shift. At the end of January pricing implied a 132% probability of a 25-basis point rate cut in the Federal Reserve Open Market Committee (FOMC) meeting on May 1. Over the next twelve months, prices implied six and a half rate cuts by the Fed. The January 2025 settlement ended the month trading at a 3.69% rate. In February, the Fed funds futures market shifted to a projection of an initial rate cut at the July 31 FOMC meeting and a total of four rate cuts over the next year. The futures contract for January 2025 settlement ended the month trading over a 4.30% rate. These expectations pull sentiment much closer to the Fed’s projections.
Perhaps the real irony is that as the two rate path forecasts line up together, we should remember that their agreement should not instill confidence in their accuracy. History has demonstrated that neither has a very good track record predicting the future of rates. A bit surprising given the ability of the Fed to influence the outcome. However, the proverbial coin flip has provided about the same odds of predicting where rates are headed.
Although we cannot count on these rate path projections with certainty, we can learn from them as we navigate these volatile markets. We can start with an analysis of what the effect of this consensus opinion on our balance sheets is if rates do go down this path. An important ingredient of this analysis is the inclusion of what the yield curve is projecting as well. It is pointing to a much flatter yield curve in the next year which would have positive implications for our ability to generate margins for new business. However, it also indicates that current assets in the belly of the yield curve may not benefit from a sharp drop in short term rates. We should understand how the yield curve twist affects our balance sheet.
The elephant in the room when looking at a “higher for longer” rate path is liquidity. This path would mean we are unlikely to see any major improvement on the liquidity front in this scenario, especially combined with the winding down of the Bank Term Funding program by the Fed. We also should be prepared for increased competition for our member deposits. Banks have been fairly quiet on this front as they pulled back in the consumer lending market in the past year. A return to auto lending would likely generate more aggressive rates from the banks for CDs and money market accounts. Given the economic backdrop, liquidity should remain front and center with solid plans and strategies in place for the coming year.
If you would like some help on this front, check into our Liquidity Framework Review. It provides a 360-degree view covering all aspects of liquidity including available options, contingency plans, policies, regulatory compliance, and risk evaluations.
Market Update and Security Offerings Email
This weekly communication will provide an update on key market rates, as well as provide indicated offering levels for Treasuries, Agencies, Mortgage-Backed Securities, and select other investment types available through Corporate Central’s Broker/Dealer program. It will include robust fundamental analysis and total return analytics to help credit union members identify characteristics in the market sectors that meet their needs.
Financial Reads
Are you looking for some good reading that might help you at work too?
The Signal and the Noise: Why So Many Predictions Fail-but Some Don't
Ever wonder how weather forecasts just don’t seem to work? Why does a 10% chance of rain not always mean it might rain? Nate Silver tells the reader how to separate actual predictive data from the noise in many aspects of daily life. You will also learn how he predicted all 538 congressional races, hence 538.com.
When Genius Failed: The Rise and Fall of Long-Term Capital Management
Roger Lowenstein shows us the principles that brought us Long-Term Capital Management, the arrogance of certainty and how even Nobel Prize winners can get things very wrong. Everything works great while it’s working; until it stops working.
Getting to Know Your CUSO Team
Meet Grant Peyron, Your Money Maestro (aka Financial Strategist).
Grant Peyron on the road meeting with Park City Credit Union’s President/CEO, Val Mindak, and CFO, Shawn Achterberg, along with Corporate Central’s Relationship Development Officer, Joel Shearrow.
Some of you may know Grant from the helpful financial articles he emails daily to busy credit union executives, while others may have had the pleasure of talking with him at conventions or other events around the Midwest and beyond. He is passionate about helping credit unions find the financial resources to help them thrive.
Grant joined Corporate Central in September 2021 as a Financial Strategist. His primary role is to proactively advise credit unions on methods to productively manage their financial services and product portfolios. He also develops new business, builds rapport, and provides fiduciary expertise to credit union decision makers.
Grant has 32 years of experience in the futures/commodity industry. He began his career with Kemper Clearing in 1989 facilitating interest rate futures order execution at the CME. He then spent 28 years with Rosenthal Collins Group as their CME Trading Operations Manager. He also ran the 24-hour Electronic Execution Service desk with Marex Spectron. Grant studied Economics at UW-Parkside and went on to earn his Series 3 Futures License.
In his free time, Grant enjoys spending time with family and friends, boating in Door County, and traveling to his daughter’s track meets. He also enjoys listening to podcasts of his favorite financial gurus.
Connect with Grant on LinkedIn.
Events
Investments 201 | Webinar Series
Join us for the Investments 201 Webinar Series, a monthly deep dive into the world of balance sheet and investment portfolio management. Webinars will be held on the third Thursday of each month at 2:00 p.m. CT for 45-minutes. These sessions will be tailored for managers seeking valuable insights to optimize their investment strategies.
Session highlights:
- Market sentiment analysis: get a comprehensive overview of the current market sentiment. Our strategists will analyze key factors influencing the financial landscape, providing you with valuable insights into market trends.
- Implied interest rate paths: understand the implied interest rate paths and their impact on your investment decisions. We will delve into the factors shaping interest rates, helping you stay ahead of market dynamics.
- Spotlight on investment products: each month we will shine a spotlight on specific investment products that hold significant value in the current market. Explore opportunities and gain a deeper understanding of products that align with your portfolio.
- Portfolio management strategies: navigate the complexities of portfolio management with our expert guidance. Discover effective strategies to optimize your investment portfolio, ensuring a balanced and resilient approach.
2024 Economic Outlook Conference
Thursday, September 12, 2024
Save the date for Corporate Central's 2024 Economic Outlook Conference. Attendees will learn valuable information about the current and upcoming economic environment from a diverse speaker lineup that will assist with your 2025 planning efforts. QuantyPhi is a proud sponsor of the Economic Outlook Conference. The event is being hosted at the Ingleside Hotel in Pewaukee, WI. Corporate Central has reserved a block of rooms for attendees. Hotel reservations can be made using the link on the event page.
Spotlight on SimpliCD
SimpliCD can help your credit union raise liquidity with nonmember deposits. How does it work?
SimpliCD will show your rate to its network of more than 3,400 credit union investors and gather funds for your deposit. You may issue in any amounts, with no minimum or maximum requirements, in terms that fit your credit union’s needs. You will receive one wire, one certificate, and will send one interest payment per term, or have SimpliCD automatically deduct the interest payment from your settlement account at Corporate Central.
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MILWAUKEE, WI – March 1, 2024 – QuantyPhi, a balance sheet optimization CUSO for credit unions, is pleased to announce Adam Stone has accepted the position as the new CUSO President. This comes following a recent announcement by previous President, Kevin P. Chiappetta, CFA, to take on a new, exciting role as Senior Vice President/Chief Education & Research Officer with Corporate Central Credit Union.