The Importance of Liquidity

For treasurers, the pandemic and the low interest rate environment have brought the importance of liquidity in short-term investments to the front of their minds. Perpetually low rates have led to some treasurers exploring opportunities to generate greater returns, while still keeping a form of meaningful liquidity to their investments. But stepping out along the yield curve inevitably comes with some elements of risk – including the inability to withdraw funds on the same day. A careful balancing act must be struck.

Meanwhile, Covid-19 created a liquidity event in financial markets, which in the short-term space saw many treasurers liquidate their investments to ensure they had cash on hand to meet daily business needs while facing the extraordinary challenges posed by the pandemic. Today, understanding the liquidity of a treasury investment portfolio is more critical than ever before.

The deposit trap

Two of the most popular investment vehicles for treasurers are bank deposits and MMFs. Of those two, only MMFs can return cash quickly and without penalty. That said, all MMFs are not created equal.

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