Capital MarketsCash Investments

Benchmarking Investment Strategies in a Rising Rate Environment

By May 5, 2022May 11th, 2022No Comments

Higher rates mean higher yields, but 70% of respondents to a recent NeuGroup survey conducted with Clearwater Analytics do not intend to extend duration.

Surging inflation, a hawkish Fed and talk of a recession are prompting corporate treasuries to reevaluate their cash investment strategies.

  • However, 70% of respondents to a NeuGroup survey conducted in partnership with Clearwater Analytics, Going Out the Yield Curve: Benchmarking Investment Strategies, report they do not intend to extend duration to take advantage of the uptick in yield, and some are rolling off longer maturities. The primary reason: concern about increased market risk.

A Red Flag. “The yield curve is definitely signaling an inversion, particularly between the two- and 10-year rates and therefore an upcoming recession,” said one survey respondent in a follow-up interview in April.

  • “We are running scenario analysis using advanced analytics to determine our cash position given different recession scenarios.” In addition, his company and others are stress testing their portfolios against the potential fallout from the crisis in Ukraine.

Key Findings. The accompanying white paper highlights our findings as well as practitioner input from three, follow-up focus groups. Here are the three main takeaways:

  1. Investible cash. Corporate investors expect their significant, strategic cash balances to remain steady or grow this year as they monitor current events and evolving market conditions.
  2. Extending duration. The most common response to recent shifts in the market has been to maintain—or slightly shorten—duration, reflecting concerns about market volatility and rising interest rates.
  3. External managers. The amount of investible cash on the balance sheet continues to play a factor in offering economy of scale to corporates, driving those with smaller portfolios to seek the expertise of external managers.

Click here to read or download the complete white paper.

Justin Jones

Author Justin Jones

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