By Henry Adams on 2019-11-15
The ability to place secured funds for a week to a year with a highly-rated global bank at rates that beat most unsecured deposit levels is something worth celebrating, or even better, investing in! For a brief commentary on why this is an important development, not just for our business but for wholesale funding markets in general, read Kevin's short blog post.
In markets, political uncertainty continues to be a theme, with Hong Kong once again grabbing headlines and causing stocks in Asia to turn red. In South America, we have Bolivia adding to the fragility of the markets with controversy surrounding the latest election. Venezuela continues to have significant troubles, with reports today that the water system is collapsing' and Argentina has seen highly aggressive sell-offs - default odds are now floating around 97% (at yesterday's close). Brazil's political situation has not rectified itself with continued jungle fires and deforestation (although beware the news sources), and now the former President, Lula being released from prison and immediately causing greater division among the population with renewed left-wing rhetoric. Add to this discontent in Chile, with national strikes and mass protests over inequality, which began with a simple rise in metro fares in the capital Santiago, and all of a sudden this bigger picture is increasingly concerning. These five countries alone represent 75% of the continent's population, ignore them at one's peril! Throw trade wars, Brexit, slowing (to stagnant) growth and falling interest rates globally into the mix and you can see why many investors and corporations and sitting on the sidelines and increasing cash balances.
While we are on the topic of cash balances, it was interesting to read the EuroFinance article last week on the make-up of the cash holdings of the five largest US corporations (link below). The staggering $455B is invested 53% in Government bonds, 29% in corporate bonds, 9% in MMFs, 8% in MBS and 1% in deposits. These numbers sit in stark contrast to the cash holdings of most of the rest of the institutional world, where deposits are typically 50-100% of the total. We know which group we think has the right idea.
Short-dated UK Treasury Bills have performed well over the last fortnight, with one-month auctions changing hands a few basis points more expensively on the back of demand from overseas USD buyers looking at the relative value against US T-Bills (where they are competing with the Fed who are now spending $60BN a month in the space, driving up prices). There is good value to be had in the longer-dated new issuance where returns are at close to 80 basis points for a 6 month term. For those looking to place GBP for as short as one week, please see our latest product offering.
In USD despite the various overnight and term repo operations there is still a decent pickup to be found in participating in the US treasury repo market. Whilst US T-Bills have become reassuringly expensive, one can still deposit cash with highly rated, well known banks (where many people will have existing credit lines), secured against US government assets, at levels approaching 1.70%, even in very short dates. As we get closer to the end of the year, this is only going to get better for those long of cash, as seasonal financial market funding stresses dance into full swing.
How the five largest corporations in the US invest their excess cash
Founder of world’s biggest hedge fund says ‘world has gone mad’ with easy money and ‘system is broken’
The Recent Repo Scare Carries A Deeper Warning
An FTF or Fixed-Term Fund is a regulated fund investment that offers exposure to a single investment-grade obligor for a fixed term, without the need for any client infrastructure. An FTF has many of the same characteristics as a term deposit, but can offer exposures outside of the banking sector. TreasurySpring is originating FTFs with sovereign, financial and corporate obligors.