Capital Advisors' just published a paper, "Four Steps to Prudently Pursue Yield". It says, "With the Fed on hold for an extended period, institutional cash investors need a new perspective on dealing with the prolonged low yield reality. Our four-step guide reminds investors to expect lower yields in the new environment, increase exposure only to securities supported by strong fundamentals, improve yield potential with moderate maturity extension, and be mindful of the downside risk of over-extending oneself. The Federal Reserve's August 10th decision to reinvest proceeds from its mortgage-backed securities holdings sent an important signal that the near zero (0.00% to 0.25%) interest rate policy will likely linger longer than previously expected. With the futures market predicting the Fed funds rate stuck on zero through much of 2011, institutional cash investors need a new perspective on how to deal with this prolonged low yield reality." The summary adds, "Given these assumptions, it is possible that the moderate yield increases in money market funds and other cash portfolios in recent months will reverse course in coming weeks. Should one be content with the meager yield, if any, from these commingled vehicles? What are some of the feasible yield opportunities? Should one consider increasing portfolio risk when a double-dip recession may cause new credit concerns? We hope our four-step guide provides a helpful perspective to the institutional cash and short-duration community."
