Cash held by US companies halved since 2021 amid high interest rates, data shows

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By Ateev Bhandari

(Reuters) -Cash allocations by U.S. corporations have halved since 2021 as elevated interest rates prompt a shift to higher-yielding treasury bills, data from Clearwater Analytics showed on Tuesday.

Median allocations to cash – which includes hard currency, money market funds and 90-day treasury bills – dropped to 20% at the end of July from 40% in 2021, according to a report encompassing around 800 of the investment management software maker’s U.S. corporate clients with a combined $1.3 trillion in assets.

This marks the lowest level in Clearwater’s system in at least eight years.

Excluding very short-term treasury bills, median allocations to U.S. treasuries surged from 3% to 20% over the same period.

Chief financial officers are trying to secure higher yields before the U.S. Federal Reserve resumes interest rate cuts, a prospect bolstered by the July jobs report, while also balancing the need for liquidity.

A lot of the companies are holding these bonds to maturity, Matthew Vegari, Clearwater’s head of research, told Reuters.

Short-dated T-bills are quickest to adjust to rate changes, pushing companies toward longer durations for higher yields.

“Corporations are still adding duration because they know the duration risk is minimal, because the likelihood that the Fed hikes is much lower than the likelihood that the Fed cuts,” Vegari said.

Weighted by time to maturity, median portfolio durations rose to 0.61 years at the end of July, from 0.45 years at the start of 2021.

The higher-for-longer interest rate environment is “a headwind for those who need to borrow, and it’s a tailwind for those who have the cash on their balance sheets and just want to get passive income that is completely risk-free,” Vegari added.

(Reporting by Ateev Bhandari in Bengaluru; Editing by Sahal Muhammed)