The Big Guns Come Out

2 min read

Over the course of the past year there have been a slew of government programs developed to prop up the credit markets and spur economic growth. The programs have had various impacts, from stabilizing money market fund flows, to providing liquidity support for certain asset classes and direct credit support for certain targeted credits. Still, some programs were reinvented, redirected or derailed before they were even fully implemented.

All of this leaves no doubt that the current landscape facing treasurers is ever shifting as risks, opportunities and priorities are juggled about every time a new government program is announced. Against this backdrop of change, many audit committees and corporate boards are taking an intense interest in how their treasury departments are addressing risk. Due to these prevailing conditions the risks (and opportunities) for treasurers have never been greater.

Within a standard corporate investment policy that would allow for eligible investments from Treasuries to A-rated corporate securities and a nine-month average maturity limit, the yield options currently range from around 20 basis points in Treasuries, to more than 6 percent yields for a diversified basket of financial credits with an average maturity of 150 days. Certainly, because the risk/reward profile of a concentrated portfolio of financials offering a 6 percent yield has been heavily skewed toward the “risk” side in the past year, we’re aware of few treasurers who would accept this type of exposure. However, the point here is that the myriad of new government programs coupled with severely dislocated credit/yield opportunities has radically altered cash investment options for treasurers. More importantly, the increased board scrutiny and huge spectrum of yield has increased the requirement, like never before, for proper rationalization of credit exposures.

Two weeks ago the Obama administration and the U.S. Treasury announced the largest steps to date to foster growth and support the credit markets. Given the staggering dollars committed to date and the significant short and long term impacts of these programs, we thought it would be timely to review what these recent programs may mean to the typical cash investor.

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Best Regards,

Ben Campbell
President & CEO

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