Here’s an interesting snippet from CFO magazine, which may — or may not — explain the recent plunge in top-quality bond yields:
Over the past year, treasurers and CFOs have increasingly pursued the corporate equivalent of putting their money under the mattress: placing most of their outfit’s short-term cash in bank deposits, rather than in such things as commercial paper, Eurodollar deposits, or even treasury mutual funds or T-bills.
Indeed, two out of every five dollars companies have in their short-term balance are placed in bank accounts. Corporations have been depositing about 42% of their company’s short-term cash deposits in bank accounts this year, compared with 37% in 2009 and 25% in 2008, according to a recently released survey of 337 senior finance and treasury officials conducted by the Association for Financial Professionals.
Overall, companies are putting about 74% of their short-term cash into “three safe and liquid vehicles”: banks, money market mutuals, and U.S. Treasury securities, according to the AFP report on the survey. During the 2006 reporting period, in contrast, they socked away just 56% of their short-term cash there, “indicating they had more confidence in higher yielding investment alternatives.”
The question is — is it hoarding, or just corporates trying to improve their working capital?
(H/T Sean Corrigan at Diapason.)
Related links:
Corporate cash piles – FT
‘General collateral remains puzzlingly inverted to fed funds’ - FT Alphaville