Fidelity Investments latest "Money Market Monthly Commentary features a brief titled, "Not a Foregone Conclusion." Discussing the "Money Market Environment and Strategy Update," they write, "The market correctly anticipated the interest rate policy adjustment by the Fed at their October 28-29 policy meeting. `However, the market did not anticipate the continued growth of Treasury Bill supply that occurred throughout the month of October as the Treasury continues to utilize the product as a significant source of funding for the growing Federal deficits. Over the course of the past 4-months, net Treasury Bill supply has increased by over $800 billion which included a nearly $200 billion increase in Bill supply during October alone. This increase in Treasury supply resulted in a corresponding decrease of bank reserves and created attractive opportunities for our money market funds in both Treasury Bills as well as in the repurchase agreement market." Fidelity comments, "While the short-term investment opportunities were advantageous for our funds, the longer tenor opportunities became increasing challenging to evaluate given the lack of official economic data that the market received throughout the month. The longer the government shutdown lasts, the more difficult it becomes for market participants to identify the trends of the most important economic indicators such as labor and inflation which complicates the market's ability to anticipate the future reaction function by the FOMC in terms of monetary policy." They tell us, "While the majority of our funds did extend duration during October, our top priorities will always be to maintain price stability and provide liquidity to our shareholders. Therefore, during these times of heightened uncertainty, our conservative investment approach resulted in our funds remaining shorter than their respective peer groups. According to the Crane Data at the end of October, Government institutional funds had an average WAM of 39 days and an average WAL of 93 days while Government retail funds had an average WAM of 36 days and an average WAL of 87 days. Prime institutional funds ended the month with an average WAM of 30 days and an average WAL of 48 days while Prime retail funds had an average WAM of 34 days and an average WAL of 56 days." Fidelity's piece adds, "Fixed-rate CD/CP volumes were lower in October as compared to September as some of the precautionary funding taken up by issuers in the Spring continues to roll off. Despite the lower volumes over the past month, overall net supply remains higher year-to-date. Fixed-rate yields remain inverted as the three month yield decreased to 4.00-4.02% while the six-month yield declined to the 3.93-3.98% range. Volumes in the one-year tenor were light with quoted yields declining to 3.85-3.93%. All three tenors were lower in yield, reflecting the 25 bp reduction to the policy rate by the Fed at the end-October FOMC meeting. The spread for floating-rate securities relative to SOFR were largely unchanged with some signs of slight widening with the six-month tenor at SOFR +20-25 bp, the nine month tenor at SOFR +25-30 bp and the one-year tenor at SOFR +30-36 bp."
