With no end in sight for the Federal Reserve's series of "measured" increases in short-term interest rates, it's important to review your investment strategies, tools and products to make sure you are not missing any opportunities. For example, if you have been investing long term, you might want to consider reducing your durations.

By avoiding being locked into a long-term rate, you can free yourself to reinvest at higher rates in the coming months. Investment sweeps, certificates of deposit (CDs) and repurchase agreements (repos) can all be part of your short-term investment mix.

As a standard practice, be sure to review and re-evaluate all rates of return before deciding on a sweep or other investment vehicle strategy.

Some strategies that are often recommended at other times, including laddering investment maturities and barbelling–holding investments at both ends of the maturity spectrum–don't make sense when yields are rising on shorter-term investments and when the costs or risks of being locked in at too low a rate are a concern.

Forecast Your Cash
Cash forecasting is something every corporate treasurer should be doing. The opportunity cost of not forecasting your cash is significant. A study released in 2004 by consulting firm Treasury Strategies concluded that corporate investors who forecast gain 30 basis points of added portfolio return over their industry peers who don't.

Forecasting cash is just one of several recommended activities to maximize short-term investment yields. Companies should also look at their investment portfolios and make sure they act in accordance with their investment policies and benchmark their performance.

If you have a cash forecast but are not benchmarking or comparing it to your investment policy, the forecast is of little use.

Invest or Pay Down Debt
With rates rising, treasury managers should also take a fresh look at whether they are better off investing excess cash or paying down debt. The answer for any given organization will depend on the specifics of its situation. For day-to-day operating cash, liquidity products–such as cash concentration and notional pooling–are cost-effective tools and will give treasurers better control.

Companies that manage cash on a global basis should consider global cash concentration. This can involve analyzing such factors as whether earning higher rates in one country offsets additional overdraft charges that the company might incur elsewhere.

Fortunately, with automation, the cost of implementing these strategies has been substantially reduced. "Clients are now able to look at their global cash positions on a same-day basis and to concentrate the cash daily," explains Nikhil Ratnam, Vice President and Product Manager in the Liquidity Product Management Group at Deutsche Bank.

Other Considerations
The short-term investment climate is anything but straightforward these days. Treasurers must be aware of numerous economic, political and financial considerations.

Regulatory changes, such as the recent directive that bars treating option rate securities as cash equivalents, are having an impact because treasurers must unwind those hedges and move their positions into other investment vehicles. They must also keep their eyes on interest rate trends and other factors that affect rates, such as inflation, economic uncertainty, the war in Iraq and oil prices.

To ensure that you are maximizing your company's short-term cash in this rising interest rate environment, consult with your Deutsche Bank Relationship Manager.

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