Federated Investors' latest Month in Cash commented last week, "​The cash-​yield curve steepened during December as a sharp drop in the supply of overnight paper pushed rates lower at the short end while mounting jitters over the continuing euro-​zone debt crisis nudged yields higher at the longer end. Normal year-​end window dressing and other seasonal factors accounted for the dearth in repo supply, which effectively pushed some overnight rates down into the single digits.... The increase in Libor could have been larger had not the Federal Reserve in early December lowered the rate it charges foreign institutions to "​swap" euros for dollars. The Fed intervention, which was designed to provide dollar liquidity to the euro-​zone financial system, curtailed interbank lending, thus limiting the scope of upward pressure on Libor. It was a challenging month from a cash management perspective. Supply was severely constrained as banks and broker-​dealers closed their books for the year, even as seasonal inflows necessitated putting new funds to work. It remained our objective to keep maturities relatively short to take advantage of the more generous cash yields that we believe will be available if, as we expect, the U.​S. economic recovery gains traction in 2012.... As the New Year unfolds, investors will be casting a watchful eye on Europe. During the first few months of 2012, Italy will need to rollover massive amounts of government debt, and while recent action by the European Central Bank to extend longer-​term loans to the region’​s struggling banks will significantly reduce the possibility of a liquidity crisis, major sovereign solvency issues remain unresolved. We are carefully monitoring financial conditions in the euro zone and are maintaining sufficient cash to invest if the yield curve continues to steepen in coming months."

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