If the Wall Street Journal is going to steal my stuff, I should at least get them to agree to credit me with one of their famous stipple ink dot portraits!  That was my first thought when I read this headline today: Corporate Cash Chasing Low Risk Yield.  My second thought was that it's difficult to take credit for a topic that has been, and continues to be front of mind to corporate treasurers, even if I did host a webinar entitled The Hunt for Safe, Short Term Cash Yield over a month ago.  Ah well, the stipple portrait will have to wait.

 

What is not waiting apparently, is the pressure on companies find a relatively low risk way to put some of their mountains of cash to work earning something in the way of yield...anything! 

 

Witness Google who, according the WSJ "has found a new place to park some of its $40 billion cash hoard: bonds backed by car loans"  Apparently Google and other companies are beginning to look toward asset backed securities (ABS) with maturities as long as 2 years (including those backed by auto loans) as investment vehicles (pun intended) for some of their cash in an effort to earn a annual yield of 0.5% - 2.5%.  As the article further puts it:

"Google's foray into auto lending is the latest sign that ultralow rates on the longtime standby of corporate treasurers, highly liquid Treasury securities, are pushing cash-rich U.S. companies to find new places to put their money....The auto portion of an ABS index compiled by Barclays has returned 2.34% this year on deals with an average maturity of just over two years. That compares with 0.30% for comparable Treasurys this year...Some recent asset-backed securities have been priced to yield as little as 0.5%, but even that is enough of a premium to two-year Treasurys yielding 0.2% for company treasurers as they weigh acquisitions and other longer-term options for deploying cash"

 

Hmmm....so let's see, according to this news flash companies that have a lot of cash are tired of earning next to nothing and are seeking investments that maintain their liquidity, generate better yield than US treasuries (or money markets, etc.) all at very low risk (I seem to recall reading something about that here, here, here, here, and here (not to mention other places)).  And as a result of these goals, companies are turning toward highly rated ABS investments earning **yawn** 2% APR or so.

 

While ABS investments such as those mentioned in the WSJ articles above are certainly a solid part of a short term investment portfolio, might I suggest that companies consider doing what many Ariba customers are doing and invest some of their cash in another shorter-term (<60 days) investment with higher yields (anywhere from 5% to 24%+ APR), that entails no risk whatsoever (zero, zilch, nada)?  Many Ariba customers are doing just that with dynamic discounting and are finding that upwards of 20% of their suppliers are taking advantage of the early payment opportunity, yielding an average return of 24% APR and earning them millions of dollars of savings each year.

 

Google and others are rightly looking for better return on their cash, and are turning to non-traditional investment vehicles to find it.  With dynamic discounting they need look no further than their suppliers to find a safe, short term investment that yields significant returns, both in terms of savings and in terms of strengthening their supply chain through the increased liquidity provided to their suppliers.

 

If you want to learn more about how Dynamic Discounting with Ariba's Discount Pro(tm) can offer a safe investment alternative for some of your cash, check out this information here.

 

Or watch the streaming video of our webinar -http://www.treasuryandrisk.com/webseminars/the-hunt-for-safe-short-term-cash-yield-the-strateThe Hunt for Safe, Short-Term Cash Yield: The strategic value of AP & Dynamic Discounting in creating high yield, low risk investment opportunities.