1 min readWith new rules for prime money market funds coming and Basel III banking reforms already here, many corporate cash managers are seeking alternatives. Major banks are limiting corporate cash deposits in response to new liquidity coverage ratio (LCR) requirements, and prime money funds will have new, less-attractive risk/reward profiles when they institute SEC-mandated floating net…
1 min readAbstract In this research commentary, we offer a behind the scenes look at the credit approval process for cash investment portfolios. We discuss nine essential components to help clarify a process that can sometimes seem mysterious and intimidating. Beyond Ratings – What Makes Cash Unique The Credit Universe – It’s All About Supply Preliminary Screening…
2 min readA supply shortage of investments suitable for short-term corporate cash management is looming, exacerbated by new Dodd-Frank and Basel III banking regulations and upcoming money market fund reforms. As bank deposits and money funds become less available and less attractive, treasury professionals will be considering other investment-grade securities. However, they can expect to find a…
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. Average one-year default probability by a single-A corporate issuer was 0.1% in the last 10 years. Investing in single-A securities would have incurred cumulative credit losses of 1.1% over a five-year…
2 min readExecutive Summary ABCP can still be a good investment choice in large corporate treasury accounts due to the liquidity, flexibility, and yield potential of the asset class. Most traditional multi-seller conduits persevered through the recent financial crisis. Despite low issuance and investor skepticism, the mechanism of ABCP structures improved due to new regulatory measures. Potential…
2 min readAbstract BBB and Tier 2 rated debt instruments have evolved to a much larger presence in the short-duration corporate debt market than a decade ago. Default experiences and rating migration data suggest moderately higher credit risk than A-rated instruments, while expected returns also were higher. This ratings category opens up an opportunity set not found…
2 min readUpheaval and change seem to be the new normal for the short-term cash markets these days. A few weeks ago, General Electric announced the upcoming divesture of the majority of its finance business, a move that will reverse its status as a ‘non-bank systemically important financial institution’ (non-bank SIFI). The news is just the latest…
1 min readAbstract The GE announcement should be a positive credit event for creditors and bondholders. The divestiture is an event that has been seven years in the making and it will result in a significant reduction of commercial paper outstanding, especially for the direct issue CP market. Short-term corporate bond supply also will suffer. As higher…
2 min readAbstract As the money market fund industry moves to comply with the SEC Rule 2a-7 amendment, the 60-day maximum maturity prime fund concept has received much public attention. For institutional cash managers faced with a chasm between government and prime funds, the 60-day prime fund may represent a viable middle ground and a market-based solution…
1 min readSeptember brought us a new war, escalating Russian sanctions, renewed equity volatility and a close call on the Scottish succession; all certainly a reminder of the complexities and challenges that can arise at any moment. As the month unfolded, we started fielding questions on the credit impact of these events, which financial institutions would be…