Allspring Money Market Funds' latest "Overview, Strategy, and Outlook" reviews the past year in money markets. They tell us, "The Fed'​s aggressive moves in 2022 and early 2023 had an unforeseen consequence that manifested itself in March 2023. As the cost of funding grew ever higher, some bank portfolios experienced strains as the value of their longer-​dated holdings declined; this resulted in runs on some weaker banks and eventually led to the failure of Silicon Valley Bank, Signature Bank, and First Republic and the acquisition of Credit Suisse by UBS. The immediate actions taken by the Treasury, the Federal Deposit Insurance Corporation, and the Swiss National Bank quickly calmed the markets, but the credit sector remained cautious. Prime funds let liquidity grow while waiting to see if more cracks in the financial system showed. However, as calm returned and yields increased, the credit market quickly got back to business as investors returned, lured by the siren song of higher yields." Allspring writes, "As the Fed pivoted to data dependence midyear, the short credit sector was steady, with the positive slope of the one-​month to one-​year yield curve reflecting the magnitude of expectations for the future path of rate increase. The markets noticed, however, the Fed'​s intention to keep rates higher for longer, which was reinforced at the Jackson Hole Symposium in August, and so spreads and yields that were fairly stable in summer again began to widen and move higher in the fall. One-​year yields traded as high as 6.​00% for a time as expectations for several more moves by the Fed were priced into market rates. This backup in rates, however, proved ephemeral, as the Fed'​s pause appeared to be permanent following the November meeting, causing yields to drop and spreads to narrow dramatically." The piece explains, "For much of the year, in order to capture the immediate effects of increasing rates, we favored exposure to higher liquidity and credit products with resetting rates, such as those offered by floating-​rate paper and variable-​rate demand notes (​VRDNs), over fixed-​rate paper. In the fourth quarter, as it became commonly understood that if we weren'​t exactly at the end we were very close to the end of the rate hiking cycle, we extended investments in fixed-​rate term purchases, capturing the steepness of the curve before expectations reset. Even as we extend purchases when the opportunity offers favorable risk/​reward proposition, we have maintained an enhanced liquidity buffer in our portfolios not only to meet liquidity needs of our investors but also to dampen net asset value (​NAV) volatility." Finally, discussing the "U.​S. government sector," Allspring comments, "While the direction of travel for the government money markets is undoubtedly set by the Fed, the actual trading levels can vary from officially prescribed levels, usually as a result of changes in demand, such as in crisis-​driven flights to quality, or supply. In that '​game within the game,' the main event in 2023 was the debt ceiling, not because of a real fear of default, but because it caused the Treasury to reduce Treasury bill (​T-​bill) supply to draw its cash balance down before eventually launching a T-​bill bonanza to rebuild cash after the debt ceiling suspension at the end of May.... Since then, investors have lived in a supply-​rich environment, which is unusual outside of crises that require the government to raise money quickly, and as a result, they'​ve been able to buy T-​bills at fair yields, which, again, is unusual, as it typically seems as if there are never enough to go around. As the Fed'​s hiking cycle seems likely to transition to an easing cycle next year, T-​bill demand should be robust, with investors wanting to lock in higher fixed rates before any Fed cuts. While T-​bill supply should still be positive (​thank you, deficit), it'​s not likely to increase at the pace that prevailed over the last half of last year, and so the combination of strong demand and lesser supply should make 2024 feel just like the difficult old days."

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