Is it Time to Term?

After an over two year pause in interest rate movements, the phones are starting to ring at the Bank again.

If you haven’t revisited your investment strategy in a while, it’s certainly a good time to do so. The markets are waking up with the ongoing increase in interest rates. After a period of inversion, the interest rate curve is returning to something more familiar, and investors are talking about fixing.

Dusting off the laddered GIC spreadsheets is never as simple as it seems. When do you lock into fixed term rates, and how much? Well, that depends on a few important financial factors, starting with an evaluation of your current holdings. Being mindful of a few key factors can ensure you are getting the best rates possible on your investments, while supporting your operations effectively. • Take note of the rate you are receiving on funds held in fully liquid Savings and Operating accounts. • Review the duration of your investment instruments to ensure they align with any liquidity outlays. While local governments do invest a significant amount of effort into cash flow projections, forecasts can change.

Flexibility can be achieved by blending product types to maximize returns to ensure appropriate availability for unexpected events and to maintain day-to-day operations. • The expected future rate environment should play a key role in determining investment duration as well.

Work to build optionality in your broader portfolio so that you can participate in any future rate upticks. • Evaluate your strategy on a semi-annual basis or at least once per year. Sometimes this exercise is wellsuited after tax-collection season when you have higher cash holdings. A well-written investment strategy can be revisited to ensure your portfolio is performing with the changes in your local government plans, not to mention the markets.

In a conversation with Scotiabank’s Chief Economist, Jean-Francois Perrault, we asked him ‘Should clients be considering different alternatives to managing cash?’ His response, ‘We know that interest rates are set to increase substantially in the next few months. The rate environment will be very different from what has been experienced since the early days of the pandemic. Given that, treasurers should be calibrating their approach to asset and liability management to ensure they are well suited to the environment we are now in’.

Financial institutions have established cashable and redeemable GIC’s to ensure clients can invest with the peace of mind that they are getting the best returns with some built-in flexibility should situations change. Most banks will offer deposit specialist services to help you build out that strategy, and don’t hesitate to get a second opinion.

This article is provided for information purposes only. It is not to be relied upon as financial, or investment advice or guarantees about the future, nor should it be considered a recommendation to buy or sell.

JOANNE REBNER is a Senior Manager, Payments and Cash Management at Scotiabank. Joanne has consulted to corporate and commercial clients for 24 years in both her product and sales roles within the bank. For the past 14 years, Joanne has been working in B.C. specializing in coverage of Municipalities and Regional Districts. Joanne holds a Honours Degree, Business Administration. For more information, rates, products and services contact joanne.rebner@scotiabank.com.