2026 Perspectives for the Public Sector

Upholding Safety and Soundness For treasurers safeguarding public funds, safety and soundness remain paramount in cash investment policies. The 2025 AFP Liquidity Survey Report highlights that safety of principal and liquidity continue to be the most important investment objectives for corporate treasurers, with bank deposits still the preferred vehicle for short-term investments, ¹ followed by Government and Treasury MMFs. Banking partners are often chosen for reasons such as diversification, risk ratings, or geographic reach. In light of the current state of the global macro environment with ongoing geopolitical concerns and global trade uncertainty and also influenced by the U.S. regional banking crisis of 2023, treasurers continue to place an emphasis on diversification efforts to reduce concentration risk and ensure deposits above their respective country deposit insurance systems such as the $250,000 US FDIC insurance threshold remain secure. To that end, more than half of the respondents to the AFP survey impose counterparty risk limits while 30% require two credit ratings for banks. Meanwhile, 8% prefer to transact with globally or domestically systemically important banks, which are generally viewed as safer because they face more stringent regulations and higher capital requirements designed to mitigate the risk their failure could pose to the global financial system. ¹ Maximizing Return on Investment While safety and soundness take precedence, value creation is a close second as public and philanthropic institutions pursue their investment priorities. Optimizing performance is not merely about maximizing yield but about achieving returns that align with risk appetite and mandate. For global public sector entities —whether central banks, development finance institutions, or non-governmental organizations — this involves capital preservation, adherence to stringent investment guidelines, and maintenance of public trust. Preference is often given to highly liquid, low-risk instruments such as bank deposits or MMFs, while still seeking modest yield enhancements in a dynamic rate environment. Treasurers are increasingly leveraging operating and non-operating cash to enhance returns and improve operational flexibility. They are revisiting risk appetite statements to support diversification across short-term instruments, including demand deposit accounts, time deposits, and earnings credit mechanisms, tailored to prevailing interest rate conditions. MMFs have become a prominent complement to bank deposits, offering same-day liquidity, diversification across U.S. Treasury and agency securities, and price stability. MMFs are particularly important for not- for-profit entities seeking to safeguard endowments and donated funds for long-termmission sustainability. During easing cycles, when rates are falling, MMF managers often tactically extend duration — an opportunity treasurers can harness to optimize liquidity. 1 2025 Association for Financial Professionals (AFP) Liquidity Survey. Treasurers are sharpening their investment strategies to unlock maximizing returns while managing risks through strategic diversification in short term solutions ranging from bank deposits to money market funds. 14 Strategic Stewardship in Uncertain Geopolitical and Economic Times