Balancing Safety and Return

Some treasuries have extended out the yield curve to pick up yield, but they’re likely to reverse those moves when Fed tightening seems imminent.

Stubbornly low short-term interest rates have encouraged some corporate treasurers to reach for more yield by moving to longer-term investments or those with slightly lower credit quality. But the prevailing mode still seems to be caution, according to bankers and investment managers, with treasury teams putting a premium on safety rather than yield.

To the extent that companies have invested farther out the curve, they’re likely to unwind those investments before short-term rates begin to rise.

Tom Nelson, chief investment officer at Reich & Tang, which provides institutional money funds and other liquidity solutions, also noted more corporate treasurers “extending maturity, wanting to achieve some yield.”

But once short-term rates start to rise, “everything that’s happened in last 12 to 24 months will reverse,” Nelson said. “People are going to start to get more cautious, put more money into short-term vehicles, and wait for rates to reset back to a more normalized level.

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