Your investment policy might be out of date if …
Your investment policy might be out of date if a banker’s acceptance (BA) is considered an eligible investment.
The Economic Research Division of the Federal Reserve Bank of St. Louis (FRED) provides 765,000 U.S. and international time series from 94 sources. BA rates are no longer on the list. FRED discontinued the series 20 years ago. BAs were previously commonly used for international trade financing, as an exporter would prefer payment before the goods shipment, and an importer would prefer to receive goods prior to payment. Regardless, the seller risked nonpayment by the buyer.
Enter a bank guarantee: the importer’s bank drafts a BA, which is a promise to pay the exporter 90 days hence. On that date, the bank debits the importer’s account. Ninety (90) days provides more than enough time for delivery of the goods. So, a secondary market is soon developed for BAs. Once the exporter receives the BA, they could sell it in the open market at a discount from its value at maturity.
Moral of the story: new players and new methods of payment for international trade have been developed.
Your investment policy might be out of date if it does not address negative yields. Toward the end of March 2020, U.S. Treasury bill (T-bill) rates were negative out to three months. In Japan, government bond yields are negative out to 10 years. In Germany, the entire yield curve is negative out to 30 years.
Now is the time to review your investment policy and have a conversation with key stakeholders.
Download the current rate sheet
For more information on this topic, or to learn how Baker Tilly public sector investment services specialists can help, contact our team.
The information provided here is of general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances a professional should be sought. Baker Tilly Wealth Management, LLC (BTWM) is a registered investment advisor. BTWM does not provide tax or legal advice. BTWM is not an attorney. Estate planning can involve a complex web of tax rules and regulations. Consider consulting a tax or legal professional about your particular circumstances before implementing any tax or legal strategy. Securities, when offered and transaction advisory services are offered through Baker Tilly Capital, LLC (BTC), Member FINRA and SIPC. BTWM and BTC are affiliated entities controlled by Baker Tilly Advisory Group, LP, a tax and advisory firm, trading as Baker Tilly. Baker Tilly is a member of the global network of Baker Tilly International Ltd., the members of which are separate and independent legal entities.
Investment advisory services are offered through Baker Tilly Investment Services, as a Division of Baker Tilly Wealth Management, LLC, a registered investment adviser. Baker Tilly Wealth Management, LLC is controlled by Baker Tilly Advisory Group, LP. Baker Tilly Advisory Group, LP and Baker Tilly US, LLP, trading as Baker Tilly, operate under an alternative practice structure and are members of the global network of Baker Tilly International Ltd., the members of which are separate and independent legal entities. Baker Tilly US, LLP is a licensed CPA firm that provides assurance services to its clients. Baker Tilly Advisory Group, LP and its subsidiary entities provide tax and consulting services to their clients and are not licensed CPA firms. ©2024 Baker Tilly Wealth Management, LLC
