Treasury Yield Drops: Navigating Cash Management in a Volatile Environment

Treasury Yield Drops: Navigating Cash Management in a Volatile Environment
Treasure Investment Team
March 19, 2023

In the aftermath of SVB's collapse and the resulting financial turbulence, longer-term Treasury yields have experienced a significant decline. In fact, on Friday, the U.S. two-year yields recorded their largest weekly loss since October 1987, with the 10 and 30-year yields experiencing similar drops. The yield curve, which is a graphical representation of the yields on various maturities of Treasury securities, has flattened, indicating that the difference between short-term and long-term yields has narrowed.

In the current climate, cash management strategy has become more critical than ever, with Treasury investments playing a vital role in a successful approach. This is especially relevant for startups and SMBs following the collapse of several banks over the last few weeks. So how should financial leaders respond to this news and what impact does it have on cash management strategies?  We tapped our team of quantitative investment experts for their opinions.

Here are their four main recommendations for leaders looking to maximize their returns and minimize risk. 

#1. Preserve and grow capital with the right investments: In times of economic uncertainty, the primary goal should be preserving capital. Focus on low-risk, highly liquid investments such as Treasury bills or money market funds to ensure that your company’s cash reserves are protected while also earning interest.

#2. Closely manage liquidity needs: Take a fresh look at your company’s short-term and long-term cash requirements. Maintain a 3 month cash buffer in a top bank to cover operational expenses, payroll, and other immediate needs. With your extra cash, allocate to  short-term, low-risk instruments that allow for easy access to funds when needed.

#3. Diversify your company’s investments: Like any good investment strategy, a successful cash management strategy reduces risk with a diversified approach to minimize the impact from market fluctuations like the ones we are seeing currently. Finance leaders should be allocating across different types of instruments such as money market funds, short-term bonds, and T-bills to reduce exposure to any single asset class or a single bank.

#4. Partner with experts: When it comes to cash management, it is crucial to work with financial partners who can provide deep expertise that will improve returns and minimize risk. Be wary of partnering with platforms which are not registered with the SEC or don't have in-house expertise in asset management. 

Questions on your cash management strategy?

We’re here to help. Email us and we’ll connect you with our team of experts.

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