Several topics came up at this week’s International Treasurer’s editorial meeting, including the trend of of giving regional treasuries more control of local issues; the continued interest in repos and finding the right duration in the current environment.
Regional control.
Upcoming NeuGroup meeting topics reveal the growing trend of decentralization. The issue now is that the world gets more and more complex and that “boots on the ground” is a more efficient way of supporting the companies customers in a particular region. This includes giving regional centers the expertise to help with customer financing, hedging and supply chain finance. This is the reverse of a trend of centralizing treasury.
Repos.
NeuGroup peer group members are still interested in repos, up until recently a dull instrument used for cash and liquidity management. Also, a wide range of financial intermediaries use them for short-term borrowing, including money market funds, insurance companies, banks, and securities dealers. Lately repos have garnered attention because of their yield potential (in a zero-interest rate environment, anything looks good).
There have been several reports pointing out the risks involved in the assets. Back in early August a Fitch Ratings conducted a “deep dive” into the collateral within the tri-party repo market and highlighted some of the liquidity risks embedded within the securities; some of them pools of securities “that are 1) lower credit quality (e.g., ‘CCC’ and below), 2) deeply discounted and 3) relatively small in size (a median value of $800,000).”
Duration.
Duration has also come up in NeuGroup pre-meeting discussions. Companies are trying to figure out the duration sweet spot. They are trying to nail their longer term asset holdings (with presumably higher yields) to mature right at the same time that the Fed starts raising rates. So when rates go up, the value of current holding drop because they are not worth as much as something else you could be with a higher return.