Corporate liquidity positions were squeezed further in the third quarter as the median value of cash and cash equivalents declined relative to current liabilities.

The median cash ratio for companies rated investment grade by S&P Global Ratings — BBB- or higher — fell slightly in the third quarter to 18.0%, down from 18.6% in the second quarter.

The cash ratio is a closely followed measure of liquidity. The higher the reading, the more cash and cash equivalents a company has to cover the short-term obligations on its debt. The median ratio for U.S. corporations has been persistently declining since the second quarter of 2020, when companies raised substantial cash, including record levels of bond issuance, in the face of COVID-19. The ratio remains lower than it was at the end of 2019.

Borrowing costs are broadly rising as the Federal Reserve continues its aggressive cycle of benchmark interest rate increases.

For non-investment-grade companies — rated lower than BBB- — the measure of liquidity fell to 28.7% from 29.9% previously. Lower-rated companies typically have higher cash ratios due to the greater difficulty, and cost, of accessing finance.

Sector breakdown

The liquidity positions of consumer discretionary companies were squeezed particularly hard in the third quarter. The median ratio for higher-rated companies in the sector fell to 21.9% from 25.6%, while for the non-investment-grade segment, the ratio fell to 23.6% from 28.2%.

There was a similar squeeze in the real estate sector, though in the case of investment-grade companies, the median ratio is still higher than it was in the fourth quarter of 2019 before the pandemic sparked a dash for cash.