2 min readIn the run-up to the 2008 financial crisis, asset-backed commercial paper (ABCP) programs were among the many investments tainted by the subprime mortgage meltdown. The crash precipitated a steady outflow from a total of $1.2 trillion in ABCP investments at their peak in late 2007 to $238 billion in October 2017. But in recent years,…
4 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…
3 min readAbstract Debt limit negotiations often go down to the wire, generating headline risk and investor uneasiness. The yield on T-bills maturing around default date may be substantially higher than those maturing in neighboring months. The exponential growth in government money market funds since the 2016 regulatory reform increases contagion risk should shareholders and portfolio managers…
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…
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 Make whole calls caused little investor concern until the low yield environment resulted in unexpected losses. Make whole provisions fail to protect short-term investors when bond spreads fall below make whole levels. Yield volatility in Treasury securities complicates matters and increases risk for cash investors. Make whole bonds are generally not considered callable, and…