Treasurers shifted slightly more of their short-term investment holdings to government securities and away from bank deposits this year — a trend appears poised to accelerate, according to a recent survey from the Association for Financial Professionals.
The share of company cash and short-term balances held in bank deposits declined 8 percentage points to 47% in March compared to 55% a year earlier, according to the 2023 AFP Liquidity Survey Report, which surveyed 222 financial executives from companies with annual revenues of $50 million or more.
Some of the money may be moving toward the U.S. government, according to the study. Over the same time period, company allocations to government/treasury money market mutual funds increased by 4 percentage points to 18%, it found.
“These shifts in investment vehicles signal that organizations continue to be cautious and are leaning towards allocating their investments in those vehicles which offer stability and safety in the current uncertain economic environment,” the report stated.
The survey was conducted in March as executives grappled with the failure of Silicon Valley Bank and concerns around potentially widening turmoil in the banking sector. “Organizations are trying to avoid any challenges they may face if their deposits are not accessible — and so may have started diversifying their investments,” the report stated.
The results of the survey come amid a shift in the capital markets in which banks themselves are also changing gears. Last month, the Federal Reserve said banks are expected to tighten credit standards for all types of loans during the rest of 2023, noting that stresses in the banking system beginning in March prompted lenders to sharpen credit terms during the first quarter, CFO Dive previously reported. Demand for loans fell during the period.
Then too, a look back at multi-year trends underscores how the easing of the pandemic was one factor that might be causing the shifting away from bank deposits as companies may no longer need the same level of liquidity that bank deposits can sometimes offer, according to the report.
At the same time, bank deposits still represent nearly half of short term investment cash at organizations and the poll found a vast majority of organizations, 92%, approve bank deposits within their investment policies. Still, according to the report, regional banks especially are concerned that the crisis has not completely died down yet.
“Regional banks have been the most severely impacted by the banking crisis, and some of these banks remain concerned that they may not be out of the woods yet,” said the report.
Organizations plan to accelerate this trend next year. The survey found 38% of respondents plan to increase their allocations to government and Treasury-based mutual funds versus only 8% saying they’ll decrease; meanwhile, 30% intend to increase spending on Treasurys versus 10% who anticipate lowering their investments in them. Agency bonds saw a similar pattern, with 20% saying they’ll increase spending and 6% saying they’ll decrease it.
Such investments are generally known for their safety and stability versus their financial yields, but the survey indicated that financial professionals might be unconcerned. When asked about their investment objectives, 63% of respondents said “safety,” while only 33% said “liquidity” and only 4% said “yield.”
Not that organizations have completely abandoned risk. While currently representing only a small percentage of cash allocations, cryptocurrencies are expected to slightly increase over the next year. The survey found 6% of respondents plan to increase their allocations to cryptocurrencies over the next year, versus the 2% who said they’d decrease.
