“Managing liquidity has been a critical responsibility for treasurers and investment managers for many decades. The increasing concerns about counterparty risks for deposits and investments are starting to drive more actions on the asset side of the house. On the borrowing side, companies have experienced significant increases in costs over the past few years. This has been coupled with an overall tightening of the debt markets, making borrowing more challenging for many organizations. This leads to increased concerns about liquidity”, stated the latest Liquidity Risk Survey Report underwritten by Allspring Global Investments and powered by Strategic Treasurer.* 

The 11th edition of this survey report polled over 160 senior treasury professionals around the globe and focuses on helping treasury leaders enhance their understanding of vital aspects in navigating liquidity risks.

The report offers valuable information waiting to be explored. Here are the key findings:

Most companies prioritize safety, liquidity, and yield (SLY) for their short-term investment

Given that liquidity risk featured among the top risk concerns for 2023, treasury executives are focused on stabilizing liquidity. Strategic Treasurer’s survey report corroborates this fact and says, “The priority for most companies is safety, liquidity, and yield, in that order (SLY). This priority is substantial, with more than twice as many companies selecting safety over liquidity for the top slot.”

Though safety is the predominant priority overall, the emphasis on it is notably greater in large corporations, where 75% prioritize safety, 19% opt for liquidity, and only 7% designate yield as their primary selection, as per the survey report.

 

Source: Liquidity Risk Survey Report

For small companies, however, liquidity narrowly surpasses safety as the top category, with 50% choosing it over safety, which stands at 47%. When considering both the top and second choices, the distinction becomes more evident, with 93% favouring liquidity and 73% leaning towards safety.

Notable investment vehicles used for short-term funds in the past year

Short-term investment vehicles provide stability, liquidity, and are considered as low risk. This possibly explains why companies embraced bank deposit (demand deposit account, sweep, and money market deposit account) and government money market funds (MMFs) in the past year for stashing short-term cash.

Source: Liquidity Risk Survey Report

According to the findings revealed in the survey report, amidst rising interest rates in the past year, the investment vehicles that witnessed the most significant upticks in utilization were:

» Bank sweeps: 52%

» Government MMFs: 35%

» Certificate of Deposits (CDs): 13%

» Prime and Municipal MMFs: 10%

Of particular interest in the survey report is the observation that CDs hold the third spot among smaller companies as a frequently used source for short-term funds, while investment managers in larger firms, exhibit a preference for prime MMFs by a five-point spread.

To conclude, it is imperative for treasurers to remain mindful of how liquidity risks have evolved in the higher interest rate environment to best mitigate these risks, which can otherwise adversely impact their organization’s growth and stability.

To assist treasurers in gaining valuable insights into the current landscape of liquidity risk, enabling them to make informed decisions regarding liquidity risk management, and predicting future  trends, we recommend that treasury executives download, review and benefit from Strategic Treasurer’s latest Liquidity Risk Survey Report (presented with Allspring).

 

⃰ Disclosure: Strategic Treasurer owns CTMfile.