Corporate Cash and Bonds

From WSJ by Vipal Monga,


More than half of corporate cash held by U.S. companies this August was invested in investment-grade corporate bonds, a record, according to investment-software company Clearwater Analytics. Meanwhile, treasurers have reduced their companies’ holdings of more traditional investments such as U.S. Treasurys, commercial paper and bank certificates of deposit.

Companies are betting highly rated corporate bonds are safe repositories for cash that will pay higher rates than more traditional bank deposits or money-market funds. But they are also increasing the risk to an asset where principal protection is the priority.

The bond buying is causing companies to act like mutual funds or brokers, investing cash on behalf of their shareholders, argued Victoria Ivashina, a finance professor at Harvard Business School.

“This is a risky business,” she said. “Can they get it wrong? Absolutely they can get it wrong.”

How risky? Worth a ponder.


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