Trésorier/Treasurer magazine - N°94 - Juil/Août/Sept 2016 - (Page 49)
Corporate treasurers are discovering
the benefits of repos for investing their cash,
writes Olivier de Schaetzen
Typically, companies have parked their short-term cash with
banks or money market funds. But we now live in atypical
times. Banks have become a higher credit risk, and money
deposited with them is paying very low rates of interest. As for
money market funds, new regulations have made them less
attractive than they used to be.
Consequently, repos, in particular tri-party repos, have become
more in vogue for corporate treasurers. Even so, they are still
used far less by corporates than bank deposits and money market funds.
A repo is an agreement for the sale and repurchase ("repo") of
securities. The seller of the securities (the "collateral giver")
agrees to repurchase them from the buyer (the "collateral taker") at a later date for a set price. The repurchase price is higher
than the original sale price, and the difference is known as the
The securities are often high quality government bonds, but
they can be lower-rated corporate bonds, equities or other
securities. If the seller defaults, the buyer can sell the securities
to recoup the cash invested.
Striking a balance between risk and return
The main objective of corporate treasurers when investing surplus cash is to strike the right balance between investment risk
(credit, liquidity and market risk) on the one hand, and the investment yield on the other. Several years ago, before the global
financial crisis, the balance was generally skewed more towards
yield. Today, the balance is more in favour of risk mitigation,
with yield taking second seat.
Sellers are usually investment banks, broker-dealers, prime
brokers looking for funding. Buyers are usually cash-rich, riskaverse investors - such as commercial banks, central banks,
money market funds, insurance companies and, to a small but
growing extent, corporate treasuries - looking for short to medium-term, highly liquid investments.
LE MAGAZINE DU TRESORIER / TREASURER MAGAZINE
Repos are an increasingly popular choice for corporate investors looking for a safe, liquid and relatively high-yield haven
for their surplus cash. The repo market is particularly well
developed in Europe and the US, and in recent years corporate
treasurers have taken a keener interest in it.
/ AUG / SEP 2016
A repo, however, allows
the corporate treasurer to
make an investment which
is backed by the securities
held as collateral, and
which generates a yield
based on the credit worthiness of its counterparty
and the underlying performance of those securities
In other words, the priority for corporate treasurers has generally become "return of capital" rather than "return on capital",
and they are looking for new ways to protect their capital. Repo
is one of these ways.
Table of Contents for the Digital Edition of Trésorier/Treasurer magazine - N°94 - Juil/Août/Sept 2016
Table of contents
FINANCIAL HIGHLIGHTS Luxembourg Tax News
INTERVIEW Philippe Gelis - Kantox - Fintech and the future of banks
Lost in transformation
Everything has a price – a transfer price
Treasury Survey - an unprecedented picture of treasury activities in Luxembourg
The impact of negative rates on Treasury and Risks Management Systems
Towards reporting harmonisation?
Understanding the Treasury impact of BEPS
Impacts of Single Resolution Mechanism and Bail-in for European Banks
Supply chain? Not concerned?
Collateral management and the Corporate Treasury function.
Efficiently Managing Cross-Border Payments in Turbulent Times
How Mid-Market Companies Can Efficiently Manage Enterprise-wide FX Risk as they Grow
Investing surplus cash in repos
A wind of technology changes in the treasury management world
Invoicing can be fun….?
Comment améliorer la performance des fonds de pension européens
15 MINUTES WITH O2Finance
THE FINANCIAL RISK OBSERVATORY
LIFE BEYOND NUMBERS
Trésorier/Treasurer magazine - N°94 - Juil/Août/Sept 2016