Treasury Department and Treasury Analyst Role

This article is about the Treasury Department and the Treasury Analyst Role in banks, which I learned recently. There will be different responsibilities due to each bank's division and business. The more I study the content of the Treasury Department, the more interesting and important content catches my eye, so this article turns longer and longer. I hope you can enjoy it, it seems like a whole picture of this area.

What Treasury Analyst Is

The core mission: be expected to contribute to Treasury department functions including liquidity management, money market and other activities assigned, and business area communications with inter-department and Head Office.

Daily Cash Flow &Protect liquidity, Support funding

Track inflows/outflows
Forecast liquidity gaps
Support funding decisions
Ensure accounts are correct

Control data quality,Credit / KYC / AML Support

Maintain counterparty info
Support limits
Respect compliance

Learn market structure,Research, Market Analysis, Reporting

Track interest rate trends
Compare funding costs
Watch repo rates
Monitor yield curves
Follow Asian money markets
Understand instruments
Prepare market slides, Write short analysis notes

Build a trading foundation,Transaction Validation & System Work

Input trade tickets,Execute interbank trades
Handle short-term instruments
Check records
Test systems
Coordinate with operations
Support Head Office execution

In summary, this is a Responsible, Accurate, Patient, Disciplined, Curious, Stable, Cooperative person who is very interested in liquidity management, short-term interest rate markets, and hope to grow step by step into a professional Treasury trader in the future, always emphasize " Risk first, Accuracy first, Learning mindset, Long-term career".

Treasury Department Main functions

Investment with proprietary funds

The Treasury department mainly manages the bank’s own funds by investing in money market instruments such as CDs (Certificate of Deposit）, YCDs, Treasury bills, commercial paper, repos, as well as high-grade bonds.

The Core objective: Liquidity + Return + Risk balance

Money market funds (primarily for short-term liquidity management)
CD / YCD（Certificate of Deposit）：US dollar certificates of deposit issued by foreign banks in the US market.
Commercial Paper (CP)：Unsecured short-term corporate debt for high-quality issuers.
Treasury Bills：Short-term US government securities used as the most liquid and risk-free investment.
Agency Notes：Short-term debt issued by government agencies offering slightly higher yield than T-bills.
Repo / Reverse Repo：A secured short-term funding transaction using government bonds as collateral.
Interbank placements
Bonds
Government Bonds
Agency Bonds
High-grade Corporate Bonds
Supranational bonds
Derivatives (primarily used for hedging)
| Interest Rate Swaps(IRS)| Fixed/Floating Rate Conversion |
| CCS | Currency and Interest Rate Hedging |
| FX Swap | Liquidity Management |
| FX Forward | Exchange Rate Locking |
| FRA | Interest Rate Locking |
| Options | Tail Risk Management |
| Futures | hedging purpose|

Forms of foreign exchange trading and risk hedging for clients through intermediaries.

Treasury also supports client FX transactions and hedging needs through spot, forward, swap and other derivative products.

Essentially: Helping clients manage exchange rate risk while generating trading revenue for the bank.

Foreign Exchange Trading Products
Spot FX
Forward FX
FX Swap
NDF(Non-Deliverable Forward )
Risk Hedging Methods
Exchange Rate Locking (Forward)
Cash Flow Hedging (FX Swap)
Investment Return Hedging
Cross-Currency Financing Hedging

Interbank Funding

In addition, Treasury manages interbank funding and placements to ensure sufficient liquidity and optimized funding cost. The purpose is managing liquidity gaps, reducing funding costs, and balancing asset and liability structure.

Overnight / Term borrowing
Interbank placements
Repo funding
Central bank facilities
Correspondent bank funding

Main trading products:

On the trading side, the main products include YCD, money market instruments and repo transactions.

YCD
Negotiable certificates of deposit issued by banks
Traded by institutional investors
Short-term financing instruments
MM (Money Market)
CP
T-Bills
Interbank deposits
Agency discount notes
Repo(Used for short-term financing and liquidity management)
Repo
Reverse Repo

Treasury Department's Essential Financial Knowledge System

From a market perspective, Treasury closely follows Fed policy, economic indicators, interest rate trends, FX movements and money market conditions to support trading and liquidity decisions. The Treasury Department is a macro- and market-driven department and must focus on:

Federal Reserve
Interest Rate Decisions
Dot Plot
Balance Sheet Reduction/Expansion

The Federal Reserve has lowered rates to around 3.50–3.75%, and while there were expectations of further easing, recent commentary suggests a neutral stance with limited additional cuts in 2026 and possible future moves depending on labor market and inflation data. Recent Fed policy has shifted toward a data-dependent, moderate easing bias,The U.S. economy is growing moderately with stable labor markets and inflation easing toward target, supporting a cautious easing narrative.

Forecasts suggest limited interest rate cuts throughout 2026 (e.g., a cumulative 50–75 basis points) to 3.0%–3.25%, but this depends on inflation and employment data. The selection of a new Federal Reserve chair and international economic variables could increase uncertainty.

📌 Summary: The Federal Reserve is inclined towards moderate, gradual interest rate cuts or maintaining the status quo; its policy is neither extremely loose nor tight.

Economic Situation
Inflation Stance, CPI / PPI
GDP
Unemployment rate
PMI
U.S. inflation has stabilized around 2.7%, near the Fed’s target 2%, with the labor market showing mixed signals, creating a balanced policy risk environment.
FOMC projections indicate moderate GDP growth (approximately 1.6% in 2025 and 1.4% in 2026), suggesting that economic expansion continues but at a slower pace.
The unemployment rate remains around 4.4–4.5%, indicating a relatively stable but not strong labor market.

In 2026, the midterm elections and inflation are prompting the government to boost the economy through measures such as tax cuts, fiscal stimulus, and R&D tax incentives.
In conjunction with monetary policy, stable and stimulative fiscal spending is likely to provide support for household consumption and corporate R&D.

📌 Summary: US fiscal policy is expected to remain loose/stimulative, supporting short-term GDP growth.

Exchange Rate Trends
USD Index
CNY / EUR / JPY
Interest Rate Differential Impact

Several analyses suggest that the US dollar performed weakly or experience volatility in 2025, driven primarily by factors such as macroeconomic policy uncertainty, divergences in Federal Reserve policy, and global capital flows.

The dollar index has shown softness. RMB has recently strengthened versus USD, supported by Chinese macro expectations. The CNH/USDCNY exchange rate is influenced by both U.S. and Chinese policies and economic fundamentals. Exchange rate fluctuations create trading opportunities for companies seeking to hedge against currency risk.
Some media analyses anticipate a moderate appreciation of the Chinese yuan against the US dollar in 2026 (within a range of 6.5–6.8). Central bank research and investment bank forecasts: approximately 6.7–7.0 by the end of 2026.

EUR/USD (Euro against US Dollar) Some institutions anticipate a weaker US dollar and a potentially stronger euro: One-year target range: approximately 1.20–1.24.

USD/JPY (US Dollar against Japanese Yen) Institutional views lean towards a slightly weaker or range-bound US dollar: Forecasted to fluctuate around 144–146.

Interest Rate Trends
Yield Curve
Swap Curve
Short-term Funding Rates

US Treasury yields (2-year/10-year) are likely to experience a moderate decline or remain volatile, influenced by inflation expectations and policy uncertainty.

Money Market
Repo rates
SOFR
LIBOR transition
Funding stress indicators

The Federal Reserve's balance sheet reduction has been paused or slowed down, which is contributing to improved market liquidity. Liquidity conditions and short-term rates like SOFR remain core for Treasury funding decisions, as liquidity stress episodes and policy expectations continue to influence pricing. Funding cost data (SOFR, OIS term structure) is crucial for Treasury funding operations. Short-term interest rate expectations determine the pace of repo and interbank transactions. SOFR/overnight interest rates are expected to fluctuate with the tightening and loosening of Fed policy, but will generally remain in the 3%-4% range.

In summary, the Treasury Department is the central hub for a bank's fund management, market connectivity, and risk balancing.

What to invest in a declining interest rate market

During a period of moderate interest rate cuts, Treasury departments can consider:

🟢 Conservative Products

Short-term government bonds / High-credit-rated bonds
Although reinvestment rates are declining, credit risk is low, and the spread is considerable (e.g., 1-year/2-year government bonds).
Money Market Instruments (short-term notes)
Such as T-Bills, CD/YCD, Commercial Papers, Repos – used for liquidity management.
Interest Rate Swaps / Curve Strategies
Optimizing the term structure in anticipation of interest rate changes (e.g., extending or shortening duration).

🟡 Medium-Term Strategies

Floating Rate Notes (FRNs)
Maintaining yield flexibility during periods of declining interest rates.
Cross-currency hedging structures
Such as FX Swaps, NDFs, to capitalize on currency differences.

🟥 Avoid high-risk, long-duration assets
Ultra-long-term bonds (such as 30-year bonds) are highly volatile in the context of potential interest rate increases/volatility.

What to invest during periods of US-China tensions

Tense environments are often accompanied by capital flight and volatility, Products the Treasury Department can focus on during periods of US-China tensions:

🛡 High-Security Assets
US Treasury bonds / AAA-rated products
Short-term liquidity instruments (T-Bills, Repos)
Used to respond to rapid market changes

🌍 Diversification Strategies
Foreign currency bonds (such as euro-denominated high-credit bonds)
Safe-haven currency position management (Japanese Yen/Swiss Franc assets)

💱 Hedging Tools
FX Forwards / Options
To hedge against currency fluctuations related to US-China relations
During periods of geopolitical tension, maintaining highly liquid and high-credit assets is a core strategy.

In summary:
🔹 In falling interest rate environments, Treasury should favor short-term, high-credit, floating-rate, and hedge instruments.
🔹 With economic growth moderately stable, focus remains on liquidity + risk control + yield optimization.
🔹 In geopolitical stress, prioritize high-quality liquid assets and FX hedges.

In the U.S. 2026 context, monetary policy is expected to follow a modest easing cycle with potential rate cuts totaling 50–75bps, while fiscal policy remains supportive through tax incentives and expenditure measures. For Chinese banks operating in the U.S., this environment lowers funding costs but compresses asset yields. Strategies include optimizing ALM via short-term securities and interest rate derivatives, enhancing FX hedging capabilities, and providing cross-border multi-currency solutions. Key investment products suitable in this environment include high-quality short-term government and corporate bonds, money market instruments (Repos, CDs, commercial paper), floating-rate notes, and structured hedging instruments.

Anticipation for 2026

Treasury Portfolio Management

Investment logic

Treasury investment portfolio model logic: ALM + Trading + Liquidity. The core target:

Liquidity Security: Ensuring funds are available to meet needs at all times
Capital Protection: Controlling interest rate, credit, and exchange rate risks
Stable Returns, not high returns: Providing stable Net Interest Income (NII) / Trading income
Regulatory Compliance: Meeting LCR / NSFR / ALM requirements
Business Support: Servicing loans, foreign exchange, and customer transactions

Investment Execuation 5 Steps

Step 1：Funding Source Classification (Liability Driven)

First, consider the source of funds, the determining factors being: maturity, liquidity level, and risk level.
Customer Deposits | Stable, Suitable for medium-term allocation
Interbank Borrowing | Short-term, Money market
HO Funds | Suitable for strategic allocation
Equity Capital | Suitable for long-term investment

HO Funds (often referring to Head Office funds, central liquidity, or high-order financing) in banks represent the core capital, retained earnings, and central reserves used to fund operations, loans, and maintain liquidity. These funds are managed centrally to ensure regulatory compliance and operational stability. Centralized treasury departments manage liquidity, ensuring enough cash is on hand to meet demand, adhering to Federal Reserve requirements (often 0%–10%).

Step 2: Macroeconomic Environment Assessment (Top-down)
Input Variables:
Interest Rate Trend, Yield Curve, Inflation, Exchange Rate, Federal Reserve Policy, Geopolitics

Output Assessment:
Interest Rates: Rising / Falling / Volatile
Yield Curve: Steepening / Inverted / Normalizing
USD: Strong / Weak

Step 3: Regulation and Internal Constraints
LCR (Liquidity Coverage Ratio), NSFR (Net Stable Funding Ratio) (these two ratios are the main ratios for liquidity risk management)
Duration Limit, Credit Limit, Country Limit, Product Limit
Step 4: Treasury Product Pool Classification
Cash | Fed, Nostro
Money Market | MM, YCD, CP
Government Bonds | UST
Agency Bonds | Agency
Corporate Bonds | IG Corp
Structured Products | FRN, Callable
Repurchase Agreements | Repo
Foreign Exchange | FX Swap
Derivatives | IRS, CCS

IG Corp refers to Investment Grade Corporate bonds. These are debt securities issued by corporations with high credit quality, typically rated BBB- (S&P/Fitch) or Baa3 (Moody's) and above.
FRN stands for Floating Rate Note. It is a type of debt security (bond) with a variable interest rate (coupon) that adjusts periodically based on a benchmark rate, such as SOFR, the Fed Funds Rate, or the U.S. Treasury bill rate, plus a fixed spread.
CCS, cross-currency swap, a derivative contract between a party and a bank to exchange principal and interest payments in two different currencies. It is used to hedge foreign exchange (FX) and interest rate risks by exchanging fixed or floating payments, often for international debt.

Treasury Main Functions

Step 5: Portfolio Optimization Logic
Objective Function:
Maximize risk-adjusted return while satisfying liquidity, risk control, and regulatory constraints

Core 6 Decision Factors for Treasury Investment Portfolios: Yield, Duration, Liquidity, Credit Risk, Capital Requirements, Hedging Costs

Allocation Models and Percentage under Different Macroeconomic Environments

Scenario 1: Declining Interest Rate Cycle
Products: Medium-to-long-term UST, Agency Bonds, Fixed-rate IG Bonds, Callable Bonds, IRS Receive Fixed
Scenario 2: High and Volatile Interest Rates
Products: FRN, Short-duration Credit, Money Market Instruments, Repo
Scenario 3: Strong USD
Products: USD Assets, FX Swap Arbitrage
Scenario 4: Geopolitical Tensions
Products: UST, Agency Bonds, High-rated Bank CDs

Sample of the Allocation Percentage
| LCR Assets | 30% |
| Money Market | 25% |
| Bonds | 30% |
| Repo / Swap | 10% |
| Tactical Trading | 5% |

This strategy and percentage are limited to normal economic conditions and the bank's internal policy, such as the current moderate decline in US interest rates and the dollar; some policies will need to be adjusted.

Once Fed Policy Change, Yield Curve Shift, FX Volatility, Deposit Outflow, Credit Spread Move, the Allocation should be adjusted.

In summary, Treasury investment is a constrained portfolio optimization process. We start from liability structure, then incorporate macro outlook, regulatory constraints, and risk limits. Within these constraints, we allocate across money market, bonds, repos, and derivatives to optimize risk-adjusted return while maintaining liquidity and capital efficiency.

Treasury Manages Foreign Exchange Risk

The essence of foreign exchange risk

The risk of value fluctuations arising from mismatches in currency, maturity, interest rates, and cash flows between assets and liabilities.Treasury primarily manages: Transaction + Structural FX risk

Foreign Exchange Risk includes:
Transaction Risk | Unsettled contracts
Translation Risk | Financial statement conversion
Economic Risk | Long-term competitiveness
ALM Structural Risk | Currency mismatch

Foreign Exchange Risk Management Process

Step 1: Net Position Calculation
Assets in each currency, Liabilities in each currency, Off-balance sheet items, FX Swap

Calculation: Net Open Position (NOP), the difference between total foreign currency assets and liabilities (including off-balance-sheet items).

Step 2: Set Risk Limits
Single Currency NOP, VaR, Stress Loss, Stop Loss

-Step 3: Selection of Hedging Instruments
FX Forward | Locking in exchange rates
FX Swap | Managing liquidity
CCS | Long-term structural hedging
Options | Tail risk management

Step 4: Natural Hedging
Methods:
Borrowing and lending in the same currency
Customer transaction matching
Income and expenditure matching
Step 5: Dynamic Monitoring
Indicators: FX VaR, NOP (Net Open Position), P&L (Profit and Loss), Delta

USD/CNY Specific Management Considerations

Renminbi subject to policy influence | Increased scenario testing
CNH/CNY spread | Basis management
Offshore liquidity | Swap structure
US-China interest rate differential | Carry trade risk

CNH/CNY spread represents the price difference between offshore yuan (CNH) and onshore yuan (CNY). While technically pegged 1:1, they often diverge due to market sentiment, capital controls, and liquidity, typically trading within a narrow range.

In Summary, We manage USD/CNY risk through position limits, FX VaR monitoring, natural hedging, and derivative hedging such as FX forwards, swaps and CCS. We also incorporate stress scenarios due to policy sensitivity of RMB.

Incorporating Scenario Analysis into ALM Decisions

Scenario analysis is a core decision-making tool for ALM (Asset-Liability Management).

Why is Scenario Analysis needed

Because there are lots of problems: Non-linear interest rates, Exchange rate jumps, Unstable deposit behavior, Unexpected market events.

Scenario Types

Baseline Scenario
Interest Rates Rising or Falling
Yield Curve Inversion
Exchange Rate Shock
Liquidity Crisis
Portfolio Extremes

Scenario Variables include Interest Rate, FX, Deposit Run-off Rate, Loan Prepayment, and Funding Spread.

ALM Assessment Metrics include Net Interest Income(NII), Economic Value of Equity(EVE), Duration Gap, LCR, NSFR, Capital.

Scenario's Decision path

Net Interest Income (NII) decreases: Adjust duration
Liquidity Coverage Ratio (LCR) decreases: Increase holdings of High-Quality Liquid Assets (HQLA)
FX risk increases: Increase hedging
Capital requirements increase: Adjust portfolio structure

Scenario analysis allows us to evaluate the impact of interest rate, FX and liquidity shocks on NII, EVE and regulatory ratios. Based on the results, we adjust balance sheet structure, hedging strategy and product allocation.

We manage USD/CNY risk through position limits, VaR, natural hedging and derivative hedging. In parallel, we incorporate FX shocks into ALM scenario analysis to evaluate impacts on NII, EVE and liquidity ratios, and adjust balance sheet structure accordingly.

Treasury Strategy Based on Current US Economy

US Treasury yield curve

Current characteristics of the US Treasury yield curve (a common pattern in recent years):
Short-term interest rates are high.
The yield curve is inverted or flattening.
There is significant uncertainty in long-term rates.
Interest rates are likely to decline in the future.

Treasury Preferred Short-Term Assets

T-Bills | High liquidity, low capital requirement
Agency Discount Notes | Slightly higher yield, low risk
YCD (Bank Certificates of Deposit) | Higher yield than government bonds
Commercial Paper | Short-term financing for high-quality companies
Repo | Liquidity management tool
SOFR-linked FRN | Protection against falling interest rates
Money Market Funds | Reserve liquidity pool

The Core Asset Selection Indicators include Yield / Spread, Liquidity, Credit, Capital impact, ALM matching.

Treasury uses swaps mainly to hedge interest rate and FX risks. Interest rate swaps help transform fixed and floating exposures, while cross-currency swaps and FX swaps manage currency mismatch and funding structure. All derivative usage is governed by limits, VaR and hedge effectiveness assessment.

In the current yield curve environment with high short-term rates and curve inversion, Treasury usually prefers short-duration instruments such as T-bills, agency discount notes, YCD, high-quality CP and repos, which provide attractive carry, strong liquidity and low interest rate risk.

In a high short-rate and inverted yield curve environment, Treasury prefers short-duration money market instruments to capture carry while maintaining liquidity. At the same time, we actively use swaps and other derivatives to manage interest rate and FX exposures, ensuring balance sheet stability under different scenarios.

Treasury Department and Treasury Analyst Role