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Can it all be about the Treasury yield?
| 13-02-2018 | treasuryXL |
There is a major rethink as to the predicted treasury yields for the end of 2018. The German 10year Treasury yield, which is seen as a benchmark in the Eurozone, had an average yield in 2017 of about 0.30%. In the first six weeks of 2018 this has more than doubled and the yield is now 0.72%. Reports that had been published at the end of 2017 are rapidly being updated as the predictions are adjusted for the reality of the current market. A quick look at the websites of major banks show a consensus that the yield could easily be 1% at the end of 2018.
As the German 10year Treasury is a benchmark for pricing other long dated instruments within the Eurozone, this implies that all other rates will be rising faster than expected. If we assume that spreads between Interest rate swaps (IRS) and Treasury remains fairly constant, this would imply that 10year EUR IRS will have a fixed rate around 1.50% by the end of 2018 having averaged around 0.80% for 2017.
Included is a graph showing the price movement of 10Y EUR IRS since start of 2017
Treasury yields have been in a bull market for almost 40 years – in the early 1980s the yield on 10year German treasury was around 10%. This fell gradually and actually turned negative in 2016. Are we entering a new bear market?
TREASURY FOR NON-TREASURERS: The good, the bad and the ugly of outsourcing
| 12-02-2018 | treasuryXL |
Outsourcing is a method used by most Governments in Europe to buy a particular service as opposed to providing the service directly. This allows a Government (or a company) to identify their core competencies and to buy in the ancillary services they need to perform all their tasks. A big motivator is of course related to cost. For a company this means only employing those staff that are needed for the core operations and hiring in those needed for non-core functions, such as pay roll. For Governments it allows large direct capital expenditure to be removed from the balance sheet whilst still providing necessary services for maintenance and construction in the general infrastructure within the country.
In simple terms, however frustrated we might be with builders or manufacturers, we generally recognise that it is more efficient – both financially and economically – to have external suppliers perform these functions. We do not possess the knowledge or proficiency to undertake building our own homes or designing and fitting our own kitchens. It is more acceptable to hand complex tasks over to others, and so make the procedure more accountable and manageable.
Likewise for companies it is imperative to determine whether to employ permanent staff to undertake their treasury and cash management operations, or to look at buying in the relevant knowledge and expertise. Many companies do not have a dedicated treasury team. Regularly, the work of a treasurer is incorporated into the work of another existing role within the organisation. This can be performed by the CFO, a controller, or the head of planning and control. Invariably, none of these people actually have the complete skill set to perform the treasury task.
When financing is needed for long term investment, contacting 3 banks and just taking the cheapest quote is not actually the same as getting the best deal. The individual banks could have different standard terms and conditions. The ratios expressed in the bank covenants could also differ from bank to bank. Implementing a hedging strategy for foreign currency requires a deep knowledge of the company’s cash flows, sales and purchases, and comprehensive understanding of the different financial products that can be used to hedge the risks.
Employing someone fulltime to perform these tasks is counterintuitive if there is not enough work for that person to be employed full time. Other staff could be resentful; the person could become disenchanted if there is not enough of a challenge in the work; a lack of continuity within the company could exist.
However, employing someone on a flexible basis to do the work that needs to be done and nothing else, allows direct payroll to be cut, a dedicated and proficient person is employed to perform the tasks, and the company can yet again focus on their core competencies.
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IBM-Maersk Blockchain Platform: Breakthrough for Supply Chain?
| 09-02-2018 | Carlo de Meijer |
Present challenges in the shipping industry
This announcement is an answer to the growing demand across the shipping industry for efficiency gains and opportunities coming from streamlining and standardising information flows using digital solutions.
The world’s shipping ecosystems with more than $4 trillion of goods shipped every year have grown in complexity. One major challenge with supply chain management in the shipping industry today involves record keeping. A lot of record keeping is still based on inefficient outdated systems. Along with paper legal documents, much of the international shipping industry’s information has been transmitted via very old technologies.
Presently, many shipping supply chains are still confronted with enormous bulk of paperwork and bureaucracy involving many intermediaries in cross-border trade. Especially the traditional cross-border shipping processes usually involve manually transporting and verifying paper documents for each shipment. Just as an example: “a shipment of refrigerated goods for instance from East Africa to Europe can go through nearly 30 people and organizations and involve more than 200 different communications”.
This means that today, a vast amount of resources are wasted due to inefficient and error-prone manual processes. This could lead to lost documentation or delays in delivering. goods. These costs of the required trade documentation to process and administer many of these goods are estimated to reach one fifth of the total costs of moving a container. By the way, the cost of global trade is estimated at $1.8 trillion annually.
Why blockchain?
The attributes of blockchain technology are said to be ideally suited to large networks of disparate partners like the shipping industry. This technology opens up an entirely new set of possibilities and an innovative opportunity to engage the entire global shipping ecosystem.
Blockchain technology addresses the many supply chain challenges as it establishes an immutable record shared of all the transactions among network participants that is updated in real time, enabling permissioned parties in a private blockchain environment access to trusted data in real time.
Read the full article of our expert Carlo de Meijer on Finextra
Carlo de Meijer
Economist and researcher