Despite Kraft blowout, treasury faces volatility in some funding and investment vehicles.
Capital markets issues caught treasurers both coming and going this week—literally. On the one hand, Moody’s unnerved the high-yield markets when it reported that the $1.4 billion in junk bonds coming due in the next five years could cause trouble if the economy doesn’t improve. While the investment-grade market remained strong—witness the monster $9.5 billion multi-tranche offering today by Kraft, which the food giant will use to fund its purchase of Cadbury—volatilities in the high-yield secondary market have increased since year-end.
The funding calendar isn’t the only worry for the high-yield market: sovereign credit worries for peripheral European countries and concerns over the Obama administration’s mega-budget proposal have caused fixed-income investors to pull in their horns overall. This re-calibration of risk appetite parallels the equities markets, where volatilities have spiked in recent days.
But that’s not the only capital markets-related issue facing treasury. Many companies are still trying to understand the ramifications of the Securities and Exchange Commission’s new rules on money funds, which tighten the criteria on quality and maturity of the investments those funds can make. The rules, issued a week ago (see “Issues on the Horizon: The SEC’s One-Two Punch for Treasury,” January 28, 2010), put treasury investment managers on the horns of a dilemma: accept the lower yields the money funds will eke out in the wake of the new rules, or try to secure better returns elsewhere by shouldering more risk.