Cash & Liquidity ManagementInvestment & FundingUS Cash Managers Switch Investment Tactics after FDIC TAG Expiration

US Cash Managers Switch Investment Tactics after FDIC TAG Expiration

US corporate cash managers switched their investment allocations in December ahead of the expiration of the unlimited guarantee on non-interest bearing bank accounts provided by the Federal Deposit Insurance Corporation (FDIC), according to data issued by Clearwater Analytics and reported in the
Wall Street Journal
.

A bill that proposed to extend the US Transactional Account Guarantee (TAG) programme for a further two years beyond 31 December 2012 was defeated last month in a
procedural vote in the Senate
.

Since the 2008 financial crisis, the TAG programme had guaranteed all non-interest deposit accounts at US banks and credit unions, above the FDIC’s normal US$250,000 limit for insurance on those accounts. 

According to Clearwater, commercial paper had the biggest allocation increase among asset categories last month, growing by 0.86 percentage point to represent 9.87% of all assets, according to data from Clearwater Analytics. Certificates of Deposit (CDs) also grew to 2.5%, a 0.55 percentage point increase and its highest level in more than a year. Agency bonds declined by 1.11 percentage points to 14.91% of the total, their lowest level since June 2011, while Treasurys also fell by 0.62 percentage point to 24.35%.

Investment in corporate debt was little changed in December, increasing by only a .03 percentage point to 32.16%, the largest asset category in the data. Asset backed securities (ABS) and mortgage backed securities (MBS) also grew only modestly, to 3.89% and 3.7% respectively. Auction rate securities (ARS), which have steadily fallen since a high of 3.04% in February 2009, continued their decline to represent only 0.13% of corporate cash investments at the start of the year.

“Corporate investors moved away from expiring TAG accounts into the same money funds driving yields lower,” said Phil Bartlett, a senior portfolio manager at Clearwater. “In response to the lower yields, corporate cash investors continued to shift their exposure to CDs and commercial paper as replacements for agencies and Treasurys.”

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