State Street Investment Management posted a brief earlier this month titled, "An oddly quiet year end." It says, "Front-end markets ended 2025 in rare calm, with tight spreads and steady ABCP pricing. As supply constraints loom and Fed policy evolves, tactical entry points and extensions remain key. US front-end markets closed the year in an unusually orderly fashion -- which, in money-market terms, is a bit like turbulence-free airspace in December: appreciated but treated with suspicion. Year-end funding needs were completed, and activity shifted to day-to-day liquidity management, with little urgency evident as we rolled through year-end. It was exceptionally quiet. Unlike prior years, term spreads have avoided the significant seasonal widening." (Note: We're still looking for sponsors and speakers for our upcoming Bond Fund Symposium, which is March 19-20 in Boston, Mass.)
The piece explains, "Asset-backed commercial paper (ABCP), in particular, failed to cheapen meaningfully, reflecting stronger balance sheet capacity and a notable absence of forced cash movements. While there were a few large prints, the overall tone has been steady rather than desperate, a meaningful change for investors accustomed to year-end funding drama."
SSIM writes, "Looking ahead, supply constraints are likely to drive incremental spread tightening in the new year, particularly in the 3–9-month sector. Early visibility into 2026 funding calendars suggests a relatively benign environment, aside from the seasonal patterns, encouraging selective extension further out the curve. Interest in ABCP remains strong, especially collateral programs (repo). Optimism is not exuberance -- but in front-end markets, 'functional' is high praise."
They tell us, "Treasury bill markets remain well bid, though positioning continues to be highly tactical and resolutely month-to-month. Issuance volumes have been substantial, and we expect continued net bill supply even outside of the typical Q1 seasonal dynamics tied to tax refunds and April tax receipts. Dealers remain active, with desks regularly soliciting bids, suggesting no one ever quite feels 'long enough' bills."
They add, "Looking ahead, the US Federal Reserve's new Reserve Management Program could become a meaningful source of incremental T-bill demand in the new year. With the Fed's Standing Repo Operations firmly embedded in the toolkit, and reserves, repo rates, and bill supply all interacting dynamically, the funding landscape has plenty of moving parts. Conditions remain orderly for now -- but this is money markets, so vigilance remains mandatory. In the near term, we continue to favor the 4-month sector and one-year maturities north of 3.50% offer good value. We remain disciplined with our entry points, balancing income with flexibility."
In other news, the Public Funds Investment Institute published a research report, "LGIP Disclosure and Transparency: What Investors Are Missing." It states, "Last November we released results of our annual survey of local government investment pools, which covered 161 pools with nearly $1 trillion in assets. One observation we made in that report was that LGIPs lack uniform disclosure/transparency with the result that self-governance within the industry is challenging and investors are limited in their ability to assess principal stability and liquidity risk and to compare LGIPs."
The PFII release says, "We've now taken a deeper dive into this with a survey of the specific disclosure and transparency policies of 30 LGIPs. The sample includes state-sponsored and local-sponsored pools and those managed internally and by external managers. The survey also was designed to include pools managed by all of the private sector firms that support offerings of multiple LGIPs. These funds generally employ practices that are recommended by the individual managers, and they utilize what appears to be a common disclosure template. In this sense the current survey of 30 pools can be seen to cover all of the significant disclosure policies of the industry."
It continues, "Key findings of the survey: Disclosure varies tremendously from fund to fund but is generally much less than disclosure required by the Securities and Exchange Commission for money market funds ...; The most common disclosure is LGIP yield, but even here the lack of a common definition of yield makes it difficult for investors to compare funds or to compare yields with those on other investments; More important than yield for any public funds investors is principal stability and liquidity. LGIPs promise this but many do not offer any ongoing information on how they are managing these issues. Investors are left with a 'trust us' approach."
The update adds, "LGIP investors can promote LGIP transparency. We've developed a simple form that can be used to score LGIP transparency. And there are web-based automations, some based on artificial intelligence, that can facilitate gathering key information and monitoring LGIP risk and performance. These require that LGIPs publish key information in an accessible form. Treasurers and public sector investment managers should insist on this as a condition of approving an LGIP for investment. The Public Funds Investment Institute is available to assist investors in completing evaluations and encouraging LGIPs to adopt full disclosure formats."
