2 min readExecutive Summary Since the introduction of the first fund in 1972, institutional money market funds have gained a well deserved position in most corporate cash portfolios, thanks to their safety, constant share price, liquidity, and competitive yield. But money market fund investing is not risk-free. In the last 15 years, at least one institutional fund…
2 min readExecutive Summary Compared to past periods, the yield curve inversion we are experiencing is quite benign. Therefore, there need not be profound concerns that an economic recession will automatically derive from this phenomenon. After the Fed funds rate reaches its peak in the coming spring-summer timeframe, one can expect the shape of the yield curve…
2 min readExecutive Summary There are generally two ways of calculating investment returns. Mutual funds, pension plans, and investors with total return objectives predominantly use the market value based method. Money market funds, cash portfolios, insurance accounts and investors seeking income stability tend to rely on book value based returns. Sometimes, an investor may use a type…
2 min readExecutive Summary The most compelling argument for total return strategies is demonstrated by a difference of 1.73% in annualized returns between the 1-month and the 1-3 year Treasury benchmarks in the 1995-2004 period. The return difference translates into $26.6 million for a hypothetical investment with a starting value of $100 million. Even though neither of…
1 min readExecutive Summary ABCP can be a good investment choice in large corporate treasury accounts due to the depth, liquidity, flexibility, and yield potential of the asset class. ABCP gained popularity recently because increased event risk of corporate names resulted in concern about unsecured commercial paper. A potential investor of ABCP should carefully review the strength…
2 min readExecutive Summary The auction rate securities (ARS) market may be on the verge of a systemic meltdown after the recent PriceWaterhouseCoopers’ FAS 95 & 115 interpretations of ARS as long-term investments. Corporate cash managers may exit the ARS market. At a minimum, firms will likely scramble to comply with the new interpretation, experience technical defaults…
2 min readResearch Highlights The ratio of roughly 3 to 1 single-A vs. double-A issuers suggests a liquid market sector and potential for better risk diversification. One-year default probability but a single-A corporate issuer was 0.02% in the last 10 years. Investing in single-A securities would have increased cumulative credit losses by 0.20% over a five-year span…
3 min readCorporate treasury managers are frequently confronted with the task of picking the right benchmarks for their cash portfolios. Unlike stocks and long bonds, a market-based index is often too long or too risky for cash investments. Some treasurers resort to comparing “yield” earned on investments on the assumption that it is the only relevant factor…
3 min readOn the day Merck announced the withdrawal of its arthritis drug Vioxx, its stock price closed down 27% from the previous day. By the time Moody’s downgraded Merck’s debt to Aa2 40 days later, the formerly AAA-rated company had lost 42%, or $58 billion of its equity value. Is it time for investors of short-duration…
2 min readExecutive Summary Empirical data support the view that AAA-rated asset-backed securities provide comparable investment returns while incurring less credit risk and return volatility than AAA-rated corporate securities. The annual return advantage of ABS was 5 basis points (bps) over corporate securities in the last six years. The return pickup shot up to 41 bps annualized…