Crane Data Subscribers
New Year Looking Good For Money Mkt/Fund Recovery as Rates Plunge. Money markets, which had already been recovering due to previous Federal Reserve rate cuts and due to a coordinated effort by Central Banks worldwide to supply liquidity, got more good news over year end as rates plunged. Federal funds closed at an average of 3.06%, well below the target 4.25%, on Dec. 31, according to the Federal Reserve's daily interest rate series. LIBOR, commercial paper, and of course Treasury rates have all moved steadily downward since mid-December. While this isn't good news for savers, lower rates continue to push fund NAVs over $1.00 and continue to drive new cash into funds (from the repo and direct CP markets). Expectations of additional Fed cuts, coupled with January's traditionally strong inflows (due to bonuses, budgeting, dividends and bond coupon payments), will likely push money fund assets up sharply in coming weeks. Another rate cut and asset surge should finally put to final rest recent concerns about any money fund "breaking the buck" due to the recent SIV ABCP crisis.
