Last week, money fund manager Reich & Tang, manager of the $10 billion Daily Income family of money funds, posted an announcement saying that it was preparing to re-enter the ABCP market. The "News" brief says, "Given the improving market conditions, Reich & Tang's Investment Credit Committee (ICC) has decided to re-examine issuers in the Asset Backed Commercial Paper (ABCP) market for potential investment consideration. Our investment approach always includes consideration of a number of factors before reaching a decision to expand our investment options."
The company explains, "We are experiencing a challenging rate environment and it is our expectation that low yields will continue for several months. Approved ABCP issuers will give our portfolio managers the ability to position our portfolios to meet the needs of our shareholders. We continually monitor the improving credit conditions, economic trends and improved financial health of issuing companies to find opportunities that meet our investment objective."
They continue, "It should be noted that Reich & Tang has previously invested in ABCP issues across its portfolios, but we were proactive in shunning these securities when credit conditions began to deteriorate. We stand ready to take such actions again, if necessary. However, we feel it is a good time to review ABCP issuers and other opportunities to incrementally enhance our yield in our portfolios."
Finally, the piece says, "Our Credit Research department has clearly defined Reich & Tang's risk tolerance level, which uses historical and forward looking data to generate various market scenarios. In addition, we choose to rely on creditworthy counterparties with irrevocable commitments to purchase. These are key elements of our Credit Risk Review practices. As always, we remain committed to the preservation of safety, liquidity and credit quality in our Money Market Funds, and will maintain our focus on the credit quality of the securities we purchase to ensure that our funds have ample liquidity to meet all our clients' needs."
Asset-backed commercial paper balances have declined sharply since peaking over the $1 trillion barrier three years ago and recently dropped below $500 billion. (See our Oct. 16, 2006, one of our first Crane Data News pieces, "ABCP Outstanding Breaks $1 Trillion Says Credit Suisse Newsletter".) The Federal Reserve's Commercial Paper Outstandings series shows ABCP totals at $463.3 billion, down 34% year-to-date. ABCP represents 39.6% of the total CP market of $1.169 trillion (unseasonally adjusted), down from 44% at year-end 2008 and 47% at year-end 2007.
