The latest data from Clearwater Analytics shows companies have shifted more of their excess cash into corporate bonds for the fifth straight month in April, to a new record of 47.95 percent of total investment. The 0.58 percent jump was the largest increase of any asset category, according to Clearwater Analytics.
“Even with the possibility of the Fed beginning to raise rates later this year, investors feel that higher yielding corporate bonds are better alternatives that then low yields available in short money market products,” said Rhet Hulbert, a senior portfolio manager for Clearwater Advisors in an interview with The Wall Street Journal.
In large part the extended investments reflect an asset-liability management strategy, as more companies have extended their debt profile through public bonds deals and a hike in banks loans. Commercial and Industrial loans rose 8.5 percent in the first quarter of this year compared to the same quarter last year.
According to treasurers attending recent CTC roundtables, companies are segmenting cash into operating, mid-term and long-term buckets so they can stretch their investment options and earn higher yields.
“You need to pay more attention to what’s operating cash and what’s excess,” said one treasurer. “The question is what to do with that extra cash? Where to put it? Banks are not eager to take deposits anymore and in Europe there’s really no equivalent to MMFs.”
The current environment is forcing treasurers to look for alternative investments, she added. “That’s harder to do if you don’t have a pooling or netting structure in place,” she said. “It also creates currency issues if you’re converting euro cash into dollars. The big picture is that we’re going to invest in more bonds from a policy standpoint that means taking more risk but the current policy no longer fits the environment.”