Capital MarketsCOVID-19FX

Go with the Flow: How Treasury Is Adapting to Churning Markets

By March 31, 2020April 16th, 2020No Comments

Flexibility and resourcefulness are critical as treasury teams cope with fallout from COVID-19.

Assistant treasurers at a virtual NeuGroup meeting last week exchanged numerous examples of resourcefulness and flexibility in coping with the effects of the pandemic on FX trading, capital markets and other areas of responsibility. Here are some top takeaways:

Time for algos. One AT saidspot trading in the FXmarket became “ridiculous” as liquidity vanished and spreads widened, making it difficult to close out small spot trades. That means the FX team is “one of the most impacted right now,” she said.

  • As a result, she said the team has opened its toolbox and is using algos “ridiculously more” than usual.
  • Algos search out and aggregate snippets of liquidity across the market over time, and sometimes are used to mask the market participant’s intentions.

Meeting the market. A rebound in the credit markets and healthy liquidity in investment grade bonds allowed many corporates to sell debt last week—but not under typical circumstances and therefore requiring flexibility.

  • One member described deciding tenor and size for a large, multi-tranche deal by paying more attention than usual to meeting market demand, noting, “You can’t wait for the perfect day in this marketplace.”
  • “We had good demand and were oversubscribed across all maturities, but we let the market dictate our maturities when normally we would driven that ourselves,” he said.
  • The AT of a major consumer-goods company, which had issued late the week before, said there was plenty of liquidity but very few of the usual large investors showed up. “We actually had to ask our banking partners who some of them were,” he said, adding that it looked then like investors “were getting ready to park their cash and go home for awhile.”
  • The investors that did step up made a good bet. Another member said he had heard that the bonds issued by the first AT had tightened 66 basis points since issuance.

Documents still must be signed. Even when almost everyone is working remotely, bank documents and checks still need signatures. Two members said their teams have set up schedules to limit staff entering the building to perform that function. Another offered that a scanned phone version of the document can speed up the process, leaving signatures on the actual documents for later on.

New approach to earnings calls? One AT member asked peers about handling the Q1 earnings process, given most employees now work from home and her company’s earnings are scheduled for release in late April.

  • “We’ve had some internal discussions about whether to do the process like we normally do it, with a regular call, or do something different,” she said.

Another member whose company’s earnings are scheduled for early May said his team had tentatively mapped out a virtual call as part of its business continuity plan. Recent discussions have focused on setting a schedule to prepare for the event and planning mock calls.

  • “We’ve kicked off the effort, but it’s probably 50/50 that will actually do it [in early May] at this point,” he said, adding, “We’re testing feasibility over the next two to three weeks.”
Antony Michels

Author Antony Michels

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