Corporates seek short-term T-bill exposure
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Treasury

Corporates seek short-term T-bill exposure

Short-term government bonds have re-emerged as a viable option for corporate treasurers seeking returns on their cash, but recent events in the US banking sector highlight the risks of long-dated exposures.

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Photo: iStock

In February, Kyriba partnered with bank/broker-dealer Jiko to offer its corporate treasury clients, direct access to short-term US government T-bills.

The move is designed to capitalise on the drive among treasury teams to optimise liquidity planning by deploying cash into T-bill maturities of one, three-, six- or 12-month duration without having to hire traders or work through brokerage interfaces.

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Kelly Gemmell, Vanguard

As recent events have amply demonstrated, when considering placing excess cash into government bonds, treasurers must consider the implications of interest-rate movements.

Rising rates dilute the value of existing bonds, which is not a problem if the bond owner is able to hold it until maturity. However, if a company needs to access funds tied up in bonds it can face unpleasant losses.

This was one of the key elements in the failure of Silicon Valley Bank, whose long-dated bonds bought last year were yielding less than half that of a three-year US Treasury note bought today. That resulted in a $1.8 billion loss on its bond holdings.

Attractive rates

The shockwaves that the collapse of SVB have sent through the financial system are expected to precipitate a shift in US monetary policy.

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