A Note of Caution in the Pursuit of Yield

Over the last year or so the pursuit of yield, for many corporate treasurers, has been rightfully trumped by the objectives of adequate liquidity and capital preservation. This shift in objectives served treasurers well during the deepest of the credit crisis in 2008 as we saw liquidity and capital threatened like no time in recent memory. However, the results of this flight to quality, combined with 50-year lows in interest rates, have left many treasurers eager to once again seek yield in their cash portfolios. Yield opportunities have been further limited by recent changes in money market funds which, in an effort to reduce risk, have been driven toward shorter maturities, greater liquidity, and higher credit quality.

The bright side is that after many months of dreadful economic data, we’ve recently seen early signs of stabilization, albeit at depressed levels, and some improvement in selected data, both domestically and globally. Recent gains in equities, low mortgage rates, and a slowing of job losses likely contributed to the highest consumer confidence numbers seen in eight months. The May confidence data, which surged from 39.2 to 54.9 also came on the heels of a one percent rise in leading indicators, the largest increase since November 2005. We believe these “green shoots” are a precursor to a languid recovery that will begin to develop in the second half of this year. With the possibility of improving economic conditions ahead of us, working to develop a plan to cautiously reengage yield may now be creeping into many Treasurers’ minds.

Keeping in mind the lessons learned over the last several years along with the renewed need for credit oversight as we emerge from the recession, we wanted to cover in this month’s research some of the risks (and rewards) you may find as you work to engage yield objectives in your portfolio over the next several quarters.

DOWNLOAD FULL REPORT

Best Regards,

Ben Campbell
President & CEO