Not surprisingly, most corporate financial execs today are placing safety and liquidity top-of-mind when choosing between investments, says Ben Campbell, president of Capital Advisors Group, a Newton, Mass.-based investment advisory firm. Late last year, in fact, CFOs aggressively moved to quality, as evidenced by Uncle Sam’s December auction of $30 billion worth of 1-month Treasury notes at an interest rate of zero percent.
Even as treasurers invest with an eye on safety, most want some return. Campbell has identified several safe investments that can substitute for the standbys, like money market funds, that have been battered recently. One is the debt of some government-sponsored enterprises (GSEs), such as Fannie Mac and Freddie Mac. The securities pay a margin above treasuries, yet boast similar government support, Campbell says. For instance, as of early February, six-month Treasury bills were yielding .44 percent, while GSE debt was returning .58 percent.
Similarly, Campbell says that some government money market funds, such as those invested in GSEs, can be an option for some excess cash. However, he’s cautious about those that invest in securities with maturities extending out a year or more, given their exposure to rising interest rates.
Another option is debt issued through the FDIC’s Temporary Liquidity Guaranty Program, or TLGP. This program lets corporations issue debt supported by FDIC guarantees and has been used by both banks and nonfinancial companies, like John Deere Capital Corporation.
Finally, Campbell cautiously recommends foreign government guaranteed debt issued by those countries, like Ireland, whose governments have guaranteed bank deposits. However, investors still need to assess the country’s economy, political stability, and regulatory framework, as well as the openness of its financial systems, he adds.
Along with rethinking their investment portfolios, treasurers shouldn’t overlook credit analysis, Campbell says. “Changing credit conditions and various government programs can affect the liquidity of a credit instrument at a moment’s notice.” ###
By Karen Kroll