Corporates seek short-term T-bill exposure
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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.

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.

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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