Investment Decisions: Reaching for Yield

As deposits continue to grow and loan growth is a struggle, many credit unions are wondering what they can do with their overnight funds to pull in some extra yield.  Below is a case study of a credit union that has positive earnings and not much interest rate risk as seen by the 9.54% net worth ratio not at risk if short- and long- term rates increase to 5% as they were in 2007.



Like many credit unions, the credit union in this case study has a large amount of money in overnight funds, which totals about 15% of assets.  What would it look like if the case study credit union reached for 20bps of yield by taking 5% of assets earning 25bps in overnights and invested it in plain vanilla 3-year agency bullets at a rate of 45bps?
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