Let’s face it, markets are fickle. Just when you were getting used to earning four to five times the interest earnings you were accustomed to, you start seeing CD, T-Bill, ECR, MMDA, and LGIP rates flatten, or possibly even decline over previous months for the first time in over a year.
The short answer is: short-term rates are rising because they are more closely linked to Fed actions. With the current high-end Fed Funds target rate at 2.50%, it’s no surprise why the 1-month T-Bill rate is currently at 2.47%. Long-term rates are flattening because investors aren’t sure when the Fed’s next move will be, which is also a good indication of why the 1-year T-Bill is currently at 2.48%. Again, investors aren’t sure what the Fed’s next move is.
So, what do you do? Understand that interest rates will always be on the move. For those entities that locked-in higher rates by investing using time-horizon data, you were able to ensure your taxpayers earned anywhere between 2.60%-2.70% for monies stress tested and available for 6+ months.
The good news is that in today’s market, it’s never too late to take advantage of opportunities in the yield curve. Here are three ways you can earn and save more for your taxpayers despite a flattened yield curve:
1.) Identify how much you’re earning on ALL money. Don’t solely focus on the strategic liquidity you have for specific time horizons but also the operating dollars being used to satisfy payroll, A/P, etc. It’s a fallacy that only time deposits can help close the gap for the taxpayers. If you’re like most of the entities with whom I work, you’re also looking at earning on demand deposits, too.
2.) After analyzing each bank account and identifying where your longer-term opportunity lies, save yourself the time and trouble of rolling 30-day CDs every 30-days. If the data suggests you have time-horizon capability, use that strategic liquidity to your taxpayers’ advantage. We do not advocate public finance officials play the markets’ games. Err on the side of being as proactive and safe as possible. Keep in mind, the Chicago Mercantile Exchange’s FedWatch tool has a 47.8% probability of at least one rate cut by 1/29/2020. Now is the time to be proactive.
3.)You cannot underestimate the power of technology. Before you make up your mind that all technology is bad, consider this – with your competing priorities and time constraints, can you affordto save time and achieve better results with technology? Utilize the right bank technologies for you (the right technologies for you). Adopt AND adapt to new technological investment opportunities in the marketplace. If your investment strategy hasn’t changed in a decade, then I would seek an objective party to provide perspective for you.
Last week the Federal Reserve stated that there will be no more short-term rate hikes for the remainder of 2019. Their outlook seems to be influenced by concerns of slower economic growth both in the U.S. and worldwide.
While many may view the Federal Reserve’s recent announcement as a concern, we view it as a major opportunity. CashVest® by threeplusone® is specifically designed to transform stagnant cash holdings into a vibrant revenue- generating source for your entity.
This move triggers a major strategy shift around the value of cash. Over the last two years, those who have invested cash have kept to a 30-90 day rollover strategy.
This is now the time to extend your cash through the use of cashVest® by threeplusone® and its powerful time-horizon liquidity data. Through our proprietary liquidity analysis, we can demonstrate the actual need for cash while balancing the levels of cash needs over a 5-year period. This allows one to maximize the value of all cash, while allowing your financial institutions and advisors to invest your cash over an extended period of time, allowing the ability to preserve 2.25%+ on your cash.
Cash has value. The knowledge and power to accurately identify when you most need cash allows one to capture and preserve interest earning through the remainder of 2019 and into 2020.
You have a fiduciary obligation to manage the cash for those you serve. It’s time to preserve your cash’s value in the marketplace for a longer period of time, especially if you have the time-horizon data to provide the confidence to you and your financial institutions.
Allow your public sector organization or higherEd institution to find out what so many others across the country have learned: CashVest® by threeplusone® will provide new revenue quickly and directly by increasing the yield you receive from your existing cash.
The Federal Reserve has recently signaled a level of patience on its path of raising short-term interest rates. This is a major shift since it embarked on raising short-term rates beginning in late 2016.
On January 30, the Federal Reserve decided to maintain the current rate target range of 2.25% to 2.50%.
There are several reasons for this change in temperament: the increased volatility in the equity markets; a possible economic slowdown due to the recent government shutdown; uncertainty in other economic indicators from international trade tariffs; and concern over corporate earnings.
While these market signals of a possible slowdown may be brief (counter to my own personal beliefs), the ability to capture higher rates on your cash still exists in the marketplace.
As mentioned in previous blogs, while short-term rates may stay within a narrow range, the ability to extend your cash investments over a longer period may exist. This is a conversation you should have with your financial institution or financial advisor.
Knowing when you need your cash and how far your can extend your cash investments are the core elements of liquidity management.
At threeplusone we can provide you with time-horizon levels on all your cash, allowing you to take advantage of several opportunities that exist in today’s marketplace.
Keep in mind that every dollar you hold has value in the marketplace. As a result, having patience has its rewards. The longer you can sustain your cash investments, the greater the earnings your cash will likely produce.
Let us show you how our proprietary liquidity algorithms can help your entity—and your financial institutions—capture more earnings on your cash while staying legal, safe, and liquid.
Over the last several years, three+one has blogged frequently about the changing landscape of banking and the value of cash as an asset.
Last year at this time, I made a prediction of the top 10 trends for 2018. My batting average edged up over that of 2017, from 70% to 75% in 2018. As we head into 2019, the top 10 trends I see evolving are as follows:
1.) The outlook on cash will continue to be very positive, with cash becoming an even more valuable asset; expect it to be earning 3.0%+ by year-end 2019.
2.) Liquidity analysis and data will become more prevalent and as a standard requirement, given the value cash has become. In 2019, the Financial Accounting Standards Board (FASB) has mandated that all non-profit organizations disclose such information on financial statement. We expect the Governmental Accounting Standards Board (GASB) to follow suit in coming years.
3.) The Federal Reserve will still raise short-term interest rates at a slower pace than in 2018, due to a divided outlook by members of the Fed’s board. The 30-day Treasury bill will reach 3.0% during the year. This will lead to a continual trend of U.S. Treasuries being purchased as an alternative to bank-deposit products.
4.) I do not expect an economic recession in 2019; rather, I believe the nation’s signs of economic growth will continue on a pace of 3.0% or greater. Consumer confidence will remain high, and unemployment at historic lows.
5.) Given the new leadership in the House of Representatives, pressure will mount to have greater oversight of banking, stalling any additional rollbacks of Dodd-Frank. I also foresee calls for banks to set aside additional reserves in case of financial market stresses appear to loom.
6.) Expect the big banks to continue building their presence in large metro areas, with regionals concentrating on mid-tier cities and counties, and community banks on smaller cities and towns. Community bank mergers will continue throughout 2019.
7.) Blockchain and 5G technology will lead the way for greater pressure on entities to upgrade their technology infrastructure.
8.) The average bank Earnings Credit Rate (ECR) will exceed 1.50%.
9.) Given the staggering growth in online purchasing and lower oil prices, prepare for a dip in sales-tax projections. This gap can be made up through the proactive management of “all” cash, generating significant revenue to offset the sales-tax shortfall.
10.) three+one will help public entities and higher Ed institutions earn an additional $100 million+ in new interest earnings, enabling a greater return to those they serve.
At three+one we strive to help clients navigate through the changing landscape of banking and an environment of rising interest rates.
Like 2017, 2018 was a great year for those entities that put our recommendations into practice. Next year promises to be even more rewarding, given the trends we have identified here.
If you don’t know where to start, please call us. If you have benefited from our work, please share the word. We’d like to help more entities like yours make real improvements to their budgets and bottom lines in 2019.
After a long overdue wait, Bank of America Merrill Lynch recently reiterated that cash is once again considered a preferred asset*.
Given the increase in short-term interest rates, cash should be considered a strong asset class going into 2019, provided it is proactively managed. It is expected that bank deposit rates and the 30-day Treasury yield could hover between 2.5% and 3.0% in 2019, given the current outlook of the Federal Reserve.
I know I sound like a broken record, but cash has great value and needs to be managed accordingly. That includes ensuring that all legal, safe, and liquidity requirements are met.
It should be noted that threeplusone has been a pioneer in developing liquidity analysis and data services for the proactive management of cash for public and higher Ed entities. By identifying and establishing a time horizon on all cash, one’s financial institution(s) can use threeplusone analysis & data to help capture the value of this asset in the marketplace, thus leading to substantial new sources of interest earnings.
Cash as a preferred asset class is back, one that could lead to tens or even several hundreds of thousands of dollars to your bottom line.
It’s great that the market is now recognizing what we have been saying all along: Cash, as it has had in the past, has value right now and will have it in the future.
*CNBC, Fred Imbert and Michael Bloom, November 23, 2018